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City of East Cleveland, Ohio Single Audit Reports

December 31, 2017

Efficient Effective Transparent

City Council City of East Cleveland 14340 Euclid Ave East Cleveland, OH 44112 We have reviewed the Independent Auditor’s Report of the City of East Cleveland, Cuyahoga County, prepared by Ciuni & Panichi, Inc., for the audit period January 1, 2017 through December 31, 2017. Based upon this review, we have accepted these reports in lieu of the audit required by Section 117.11, Revised Code. The Auditor of State did not audit the accompanying financial statements and, accordingly, we are unable to express, and do not express an opinion on them. Our review was made in reference to the applicable sections of legislative criteria, as reflected by the Ohio Constitution, and the Revised Code, policies, procedures and guidelines of the Auditor of State, regulations and grant requirements. The City of East Cleveland is responsible for compliance with these laws and regulations. Keith Faber Auditor of State Columbus, Ohio November 21, 2019

JRHelle

Keith Faber

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City of East Cleveland, Ohio

For the Year Ended December 31, 2017

Table of Contents Page

i

Independent Auditor’s Report ................................................................................................................. 1

Management Discussion and Analysis .................................................................................................... 5

Basic Financial Statements:

Government-Wide Financial Statements:

Statement of Net Position ................................................................................................................. 14

Statement of Activities ..................................................................................................................... 15

Fund Financial Statements:

Balance Sheet – Governmental Funds .............................................................................................. 16

Reconciliation of Total Governmental Fund Balances to Net Position of Governmental Activities .......................................................................................... 17

Statement of Revenues, Expenditures and Changes in Fund Balances – Governmental Funds ......................................................................................................................... 18

Reconciliation of the Statement of Revenues, Expenditures and Changes in Fund Balances of Governmental Funds to the Statement of Activities ........................................ 19

Statement of Revenues, Expenditures and Changes in Fund Balance – Budget (Non-GAAP Basis) and Actual

General Fund ................................................................................................................................. 20 Community Development Fund .................................................................................................... 21

Statement of Fund Net Position – Proprietary Fund ......................................................................... 22 Statement of Revenues, Expenses and Changes in Fund Net Position – Proprietary Fund ............................................................................................................................... 23 Statement of Cash Flows – Proprietary Fund ................................................................................... 24

Statement of Fiduciary Assets and Liabilities – Agency Funds ....................................................... 25

Notes to Basic Financial Statements ....................................................................................................... 26

Required Supplementary Information: Schedule of the City’s Proportionate Share of the Net Pension Liability:

Ohio Public Employees Retirement System – Traditional Plan Last Four Years ............................ R2 Ohio Police and Fire Pension Fund Last Four Years ........................................................................ R3

Schedule of the City’s Contributions: Ohio Public Employees Retirement System – Traditional Plan Last Five Years ............................. R4 Ohio Police and Fire Pension Fund Last Ten Years ......................................................................... R6

Notes to Required Supplementary Information ...................................................................................... R8

Where Relationships Count.

Independent Auditor’s Report

Honorable Mayor and Members of the City CouncilCity of East Cleveland, Ohio

Report on the Financial Statements

We have audited the accompanying financial statements of the governmental activities, each major fund, andthe aggregate remaining fund information of the City of East Cleveland, Ohio (the “City”), as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements as listed in the table of contents.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the City’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.


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Summary of Opinions

Opinion Unit Type of Opinion

Governmental Activities QualifiedGeneral Fund UnmodifiedCommunity Development Fund UnmodifiedAggregate Remaining Fund Information Unmodified

Basis for Qualified Opinion on Governmental Activities

Management did not provide adequate support for the compensated absences balance reported within theDue Within One Year and Due In More Than One Year accounts in the Statement of Net Position. The amount by which this lack of documentation would affect the long term liabilities balance, net position and expenditures of the Governmental Activities has not been determined.

Qualified Opinion

In our opinion, except for the effects of the matter described in the “Basis for Qualified Opinion onGovernmental Activities” paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of the Governmental Activities of the City, as of December 31, 2017, and the changes in financial position thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Unmodified Opinions

In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of each major fund, and the aggregate remaining fund information of the City, as of December 31, 2017, and the respective changes in financial position, and, where applicable, cash flows thereof and the respective budgetary comparison for the General Fund and the Community Development Fund for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter

As described in Note 20 to the financial statements, on October 9, 2012 the Auditor of State determined a fiscal emergency exists, and a financial planning and supervision commission has assumed certain management responsibilities for the duration of this emergency in accordance with Section 118.03 of the Ohio Revised Code. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.


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Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis and required schedules on pensions as listed in the table of contents be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we have also issued our report dated October 11, 2019,on our consideration of the City’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’sinternal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control over financial reporting and compliance.

Cleveland, OhioOctober 11, 2019

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City of East Cleveland, Ohio Management’s Discussion and Analysis For the Year Ended December 31, 2017

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The discussion and analysis of the City of East Cleveland’s (the “City”) financial performance provides an overview of the City’s financial activities for the year ended December 31, 2017. The intent of this discussion and analysis is to look at the City’s financial performance as a whole; readers should also review the basic financial statements and notes to enhance their understanding of the City’s financial performance.

Financial Highlights

Highlights for 2017 are as follows:

On October 9, 2012, the State Auditor’s Office placed the City of East Cleveland into FiscalEmergency. Prior to this declaration, the City had been in Fiscal Caution, and then Fiscal Watch. Theinability of the City to come up with a financial recovery plan that would address deficit fundbalances is what ultimately brought it into Fiscal Emergency. Since receiving this designation, theCity has worked to put in place a plan of action to eliminate this situation.

Using this Annual Financial Report

This report consists of a series of financial statements and notes to those statements. These statements are prepared and organized in a manner that allows the reader to look at the financial activities of the City of East Cleveland as a whole and also allows the reader to obtain a more detailed view of the City’s operations, if they prefer.

The Statement of Net Position and the Statement of Activities provide information showing the effects of the operations for the year 2017 and how they affected the operations of the City as a whole.

Fund financial statements provide the next level of detail. For governmental funds, these statements tell how services were financed in the short-term as well as what dollars remain for future spending. The fund financial statements also look at the City’s most significant funds with all other nonmajor funds presented in total in one column.

Reporting the City of East Cleveland as a Whole

Statement of Net Position and Statement of Activities

The Statement of Net Position and the Statement of Activities provide summary information concerning the financial position and operations of the City as an entity. They provide a good resource for an overall evaluation of the City’s financial performance “on one page.” These statements include all non-fiduciary assets and liabilities and deferred inflows of resources using the accrual basis of accounting. This method takes into account all revenues when they are earned and all expenses when they are incurred. These transactions are booked when they occur and not when the actual cash is received for revenues or when invoices are paid for expenses.

These two statements report the City’s net position and changes in net position. The change in net position is important since it is an indication of whether the financial position of the City is improving or declining. However, to properly evaluate the operation of the City, certain non-cash items should be taken into consideration. These items would include the current economic situation as a whole, the current tax base for the City and the age and condition of the City’s buildings and infrastructure.

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In the Statement of Net Position and the Statement of Activities, the City is divided into two major activities:

Governmental Activities – Most of the City’s programs and services are reported here including, general government, police, fire, leisure time activities and basic utility services.

Business-Type Activities – These services are provided on a fee basis to recover all of the expenses of the goods or services provided. The City, however, has no business-type activities.

Reporting on the Most Significant Funds of the City of East Cleveland

Fund Financial Statements

The analysis of the City’s funds begins on page 10. Fund financial reports give a detailed report of the activities within the funds. The City has established many funds. These funds are in existence to provide a multitude of services to the citizens of East Cleveland. Some funds provide for police, fire and emergency medical service protection and streets. Some also provide for the purchase of capital assets, while others provide for the payment of principal and interest on debt. Each fund is in some ways an entity unto itself. Each fund has a designated revenue stream and restricted uses for the monies within the fund.

However, these fund financial statements focus on the City’s most significant funds. In this report, the focus is on the City’s two major funds, the general fund and the community development special revenue fund.

Governmental funds Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental funds financial statements focus on near-term inflows and outflows of expendable resources, as well as on balances of expendable resources available at the end of the year. Such information may be useful in evaluating a government’s near-term financing requirements.

Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the government’s near term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures and changes in fund balances provide a reconciliation to facilitate this comparison between governmental funds and governmental activities.

Proprietary Funds An internal service fund is an accounting device used to accumulate and allocate costs internally among the City’s various functions. The City maintains such a fund for its hospitalization of health related employee benefits.

Fiduciary Funds Fiduciary funds are used to account for resources held for the benefit of parties outside the government. Fiduciary funds are not reflected in the government-wide financial statements because the resources of those funds are not available to support the City of East Cleveland’s own programs.

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The City of East Cleveland as a Whole

The Statement of Net Position provides an overall view of the City. Table 1 shows a summary of the City’s net position for 2017 compared to 2016.

2017 2016 ChangeAssetsCurrent and Other Assets $12,056,694 $11,747,204 $309,490Capital Assets, Net 17,442,647 17,428,800 13,847

Total Assets 29,499,341 29,176,004 323,337

Deferred Outflows of ResourcesPension 3,979,449 5,346,880 (1,367,431)

LiabilitiesCurrent Liabilities 2,367,470 3,179,057 (811,587)Long-Term Liabilities: Due Within One Year 615,853 384,216 231,637 Due in More than One Year Net Pension Liability 12,645,455 16,972,956 (4,327,501) Other Amounts 35,594,080 15,957,185 19,636,895

Total Liabilities 51,222,858 36,493,414 14,729,444

Deferred Inflows of ResourcesProperty Taxes 860,605 866,065 (5,460)Pension 3,726,162 307,347 3,418,815

Total Deferred Inflows of Resources 4,586,767 1,173,412 3,413,355

Net PositionNet Investment in Capital Assets 14,877,628 14,816,936 60,692Restricted for: Capital Projects 799,499 1,034,170 (234,671)

Other Purposes 1,564,775 1,813,768 (248,993)Unrestricted (Deficit) (39,572,737) (20,808,816) (18,763,921)

Total Net Position ($22,330,835) ($3,143,942) ($19,186,893)

Table 1Net Position

Governmental Activities

Total net position for governmental activities increased mainly due to a decrease in net pension liability, which was offset by a decrease in deferred outflows related to the net pension liability.

The net pension liability (NPL) is one of the larger liabilities reported by the City at December 31, 2017 and is reported pursuant to GASB Statement 68, “Accounting and Financial Reporting for Pensions – an Amendment of GASB Statement 27.” For reasons discussed below, many end users of this financial statement will gain a clearer understanding of the City’s actual financial condition by adding deferred inflows related to pension and the net pension liability to the reported net position and subtracting deferred outflows related to pension.

Governmental Accounting Standards Board standards are national and apply to all government financial reports prepared in accordance with generally accepted accounting principles. When accounting for pension costs, GASB 27 focused on a funding approach. This approach limited pension costs to contributions

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annually required by law, which may or may not be sufficient to fully fund each plan’s net pension liability. GASB 68 takes an earnings approach to pension accounting, however, the nature of Ohio’s statewide pension systems and state law governing those systems requires additional explanation in order to properly understand the information presented in these statements.

GASB 68 requires the net pension liability to equal the City’s proportionate share of each plan’s collective:

1. Present value of estimated future pension benefits attributable to active and inactive employees’ pastservice

2. Minus plan assets available to pay these benefits

GASB notes that pension obligations, whether funded or unfunded, are part of the “employment exchange” – that is, the employee is trading his or her labor in exchange for wages, benefits, and the promise of a future pension. GASB noted that the unfunded portion of this pension promise is a present obligation of the government, part of a bargained for benefit to the employee, and should accordingly be reported by the government as a liability since they received the benefit of the exchange. However, the City is not responsible for certain key factors affecting the balance of this liability. In Ohio, the employee shares the obligation of funding pension benefits with the employer. Both employer and employee contribution rates are capped by State statute. A change in these caps requires action of both Houses of the General Assembly and approval of the Governor. Benefit provisions are also determined by State statute. The employee enters the employment exchange with the knowledge that the employer’s promise is limited not by contract but by law. The employer enters the exchange also knowing that there is a specific, legal limit to its contribution to the pension system. In Ohio, there is no legal means to enforce the unfunded liability portion of the pension system as against the public employer. State law operates to mitigate/lessen the moral obligation of the public employer to the employee, because all parties enter the employment exchange with notice as to the law. The pension system is responsible for the administration of the plan.

Most long-term liabilities have set repayment schedules or, in the case of compensated absences (i.e. sick and vacation leave), are satisfied through paid time off or termination payments. There is no repayment schedule for the net pension liability. As explained above, changes in pension benefits, contribution rates, and return on investments affect the balance of the net pension liability, but are outside the control of the local government. In the event that contributions, investment returns, and other changes are insufficient to keep up with required pension payments, State statute does not assign/identify the responsible party for the unfunded portion. Due to the unique nature of how the net pension liability is satisfied, this liability is separately identified within the long-term liability section of the statement of net position.

In accordance with GASB 68, the City’s statements prepared on an accrual basis of accounting include an annual pension expense for their proportionate share of each plan’s change in net pension liability not accounted for as deferred inflows/outflows.

By comparing assets and deferred outflows of resources and liabilities and deferred inflows of resources, one can see the overall position of the City has improved as evidenced by the increase in net position. Current assets increased mainly due to proceeds of receivables for grants. Capital assets increased mainly due to additions outpacing depreciation. Total liabilities decreased during 2017, which is mainly attributable to the change in net pension liability. The current liabilities decrease is the result of the City paying down outstanding payables prior to December 31, 2017.

Table 2 shows the changes in net position for the year ended December 31, 2017. Revenue and expense comparisons to the year 2016 are also shown.

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Table 2Changes in Net Position

2017 2016 ChangeRevenues:Program Revenues:Charges for Services $3,457,502 $3,295,929 $161,573Operating Grants and Contributions 2,254,549 1,727,825 526,724Capital Grants and Contributions 31,388 0 31,388

Total Program Revenues 5,743,439 5,023,754 719,685

General Revenues:Property Taxes 1,219,980 1,062,398 157,582Municipal Income Taxes 4,575,530 5,808,055 (1,232,525)Hotel Tax 3,349 2,481 868Grants and Entitlements 1,901,815 1,790,769 111,046Other 276,481 256,261 20,220

Total General Revenues 7,977,155 8,919,964 (942,809)

Total Revenues 13,720,594 13,943,718 (223,124)

Program ExpensesGeneral Government 23,754,027 14,247,008 9,507,019Security of Persons and Property 5,787,523 7,675,066 (1,887,543)Transportation 378,400 977,453 (599,053)Community Development 1,330,405 1,293,291 37,114Leisure Time Activities 79,329 91,415 (12,086)Basic Utility Services 1,572,074 1,129,763 442,311Interest and Fiscal Charges 5,729 108,750 (103,021)

Total Program Expenses 32,907,487 25,522,746 7,384,741

Change in Net Position (19,186,893) (11,579,028) (7,607,865)

Net Position Beginning of Year (3,143,942) 8,435,086 (11,579,028)

Net Position End of Year ($22,330,835) ($3,143,942) ($19,186,893)


The funding for governmental activities comes from several different sources, the most significant being the City’s municipal income tax. Other prominent sources are property taxes, intergovernmental revenue, and charges for services. The City’s income tax was established to be effective July 1, 1968 at a rate of one percent. This rate was effective until June 30, 1976. Beginning July 1, 1976 the rate was increased to 1.5 percent. On September 1, 1982, the rate increased to 2 percent. It is at that level as of December 31, 2017. The City does not allow any credit of the City’s income tax rate for taxes paid to other political subdivisions in Ohio. In 2017, General Electric moved a number of employees from their East Cleveland plant, causing a large decrease in income taxes received. Property taxes saw an increase from 2016. The increase in operating grants is primarily due to an increase in community development block grant and COPS grant funding.

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Total Cost Total Cost Net Cost of Net Cost ofof Services of Services Services Services

2017 2016 2017 2016General Government $23,754,027 $14,247,008 $22,825,217 $12,607,679Security of Persons and Property 5,787,523 7,675,066 3,106,584 5,969,594Transportation 378,400 977,453 (32,131) 578,595Community Development 1,330,405 1,293,291 112,729 168,259Leisure Time Activities 79,329 91,415 55,943 81,286Basic Utility Services 1,572,074 1,129,763 1,089,977 984,829Interest and Fiscal Charges 5,729 108,750 5,729 108,750Total $32,907,487 $25,522,746 $27,164,048 $20,498,992

The operations of the City’s police and fire departments account for the largest expenses of the governmental activities. The City’s police department is a full-time 24-hour a day, 365-days a year department, with a full-time chief and 46 full- and part-time patrolmen and dispatchers. The fire department is staffed by 25 full- and part-time firefighters. The police and fire departments are operated with general fund dollars. The City allocates monies from the inside (unvoted) millage to the police pension and fire pension special revenue funds to pay the employer’s portion of retirement and disability benefits to the Ohio Police and Fire Pension Fund.

The City saw an overall increase in the cost of services in 2017. General government increased from the prior year due to the City recording additional judgments payable. As of December 31, 2017, the outstanding judgments payable liability is $32,125,531. The cost of services for Security of Persons and Property decreased due to tight controls on overtime and replacement of retirees with new hires at lower rates. Transportation includes the costs of maintaining and repairing the City’s streets. Maintenance of streets on a regular basis can help delay the need for major street improvement projects in the future. Transportation costs decreased in 2017 due to the completion of road repair projects in 2016. City management continues to diligently plan expenses and seeks grants in order to maintain and improve City services.

Table 3 presents a summary for governmental activities, the total cost of services and the net cost of providing these services.

Table 3Cost of Services

The City’s Funds

A review of the City’s governmental funds provides information on near-term flows and balances of expendable resources and serves as a useful measure of a government’s net resources. Governmental fund information can be found beginning on page 16 and is accounted for using the modified accrual basis of accounting.

The City’s major governmental funds are the general fund and the community development special revenue fund. The City’s main operational fund has a deficit fund balance of $1,247,150 at year end. There were many major factors that resulted in this deficit fund balance. Some of this was due to a high unemployment rate that resulted in lower municipal tax collections, and additional outstanding bills due to vendors paid prior to year end, as well as a decrease in fines and forfeitures and charges for services. The community development fund had an increase in fund balance due to an increase in community development block grant funding in 2017.

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Budgeting Highlights

The City’s budget is prepared according to the laws of the State of Ohio and is based on accounting for certain transactions on a cash basis for receipts, expenditures, and encumbrances. The most significant budgeted fund is the general fund. The legal level of budgetary control is at the department and object level for all budgeted funds. Any budgetary modifications at these levels may only be made by an ordinance of City Council. Administrative control of the budget is maintained through the establishment of detailed line-item budgets. Transfers are contained in the annual appropriation measure and are permitted once the permanent appropriation measure has been passed by City Council.

Strong emphasis is placed on fund balances. The Finance Director reviews the fund balances on a daily basis. Special attention is paid to the City’s most active funds, which are the general, emergency medical services and community development funds. With the general fund supporting many of the major activities such as the police and fire departments, as well as most legislative and executive activities, the general fund is monitored closely for possible revenue shortfalls or over spending by individual departments. Council receives a monthly report showing the beginning fund balance for all funds at the beginning of the year, month-to-date and year-to-date revenues and expenditures, and the current fund balance. Line item reports are reviewed regularly by the Finance Director. The department heads also monitor their appropriations.

For the general fund, the original and final budgeted revenues were $10,252,630 and $10,867,303, respectively. Actual revenues of $10,724,454 were $142,849 lower than the final projections. The original and the final budgeted expenditures were $9,699,570 and $9,667,309, respectively. Actual expenditures of $9,237,912 were $429,397 lower than the budgeted expenditures. Despite the efforts of the City’s leaders to constantly monitor its finances, the City’s ending unencumbered cash balance in the general fund was ($147,220).

Capital Assets and Debt Administration

Capital Assets

Table 4Capital Assets at December 31

(Net of Depreciation)

2017 2016

Land $656,760 $656,760Buildings and Improvements 808,817 863,589Equipment 300,096 204,465Vehicles 723,347 770,443Infrastructure 14,953,627 14,933,543

Totals $17,442,647 $17,428,800


Total capital assets for governmental activities for the City of East Cleveland increased from 2016 primarily due to the capital asset additions outpacing yearly depreciation. See Note 11 in the financial statements for more information regarding the City’s capital assets.

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Long-Term Obligations

The outstanding long-term obligations for the City of East Cleveland as of December 31, 2017 has decreased.

Table 5Outstanding Long-Term Obligations at December 31

2017 2016

Capital Leases $178,898 $135,700Police and Fire Liability 1,144,341 1,144,341OPWC Loans 2,583,144 2,680,623Net Pension Liability 12,645,455 16,972,956

Totals $16,551,838 $20,933,620


The capital leases are for vehicles, a front loader and two salt trucks and will be paid from the community development block grant special revenue fund and permanent improvement capital project fund. The Ohio Public Works Commission (OPWC) governmental activities loans are comprised of seven separate, zero percent interest loans. The purpose for two of the loans is for the construction and improvement of streets. The purpose of five of these loans is for the construction and improvement of various water projects, most notable of which is the 1997 water main project. The loans will be paid over a period of 20 years from the debt service fund. During 2014, the City defaulted on their July 2014 OPWC payment due to cash constraints. The City renegotiated revised payment schedules with OPWC. The loans are now for a forty year period that started in 2014. GASB 68 establishes standards for measuring and recognizing pension liabilities, deferred outflows/inflows of resources and expense/expenditure. The police and fire pension liability loan is a specific one-time liability for the unfunded portion of the pension due for employees hired before the Police and Firemen’s Disability and Pension Fund was established. See Note 13 in the financial statements for more information regarding the City’s long-term obligations. Current Financial Issues The City of East Cleveland remains in Fiscal Emergency as it has experienced a financial shortfall which has resulted in deficit spending in the general fund and other less significant funds at December 31, 2017. To alleviate the financial shortfall, the City has developed a strategy to stabilize its cash shortfall in the aforementioned funds. See Note 20 for further information. The City has decreased expenditures in 2017. The City continues to struggle to maintain a revenue base to deliver services to the citizens of East Cleveland.

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The administration has made it a priority to review the current fee schedules to determine if the various rates currently being charged are adequate, considering the current operations. These fees include fire inspection fees and civic center fees. The City is monitoring its utility rates for all City customers in order to make the utility rates more representative of the actual cost of producing and administering the utilities. Both the administration and City Council have declared their intention of reviewing rates on a more frequent basis. Contacting the City’s Finance Department This report is intended to provide the citizens and anyone interested in the financial aspects of the City of East Cleveland a general overview of the financial operations. If there are any questions, please feel free to contact Charles Iyahen, Finance Director, City of East Cleveland, 14340 Euclid Avenue, East Cleveland, Ohio 44112, Telephone (216) 681-2323, e-mail [email protected].

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GovernmentalActivities

AssetsEquity in Pooled Cash and

Cash Equivalents $1,671,113Accounts Receivable 368,708Intergovernmental Receivable 2,259,022Prepaid Items 166,428Municipal Income Taxes Receivable 2,659,304Property Taxes Receivable 4,627,344Special Assessments Receivable 304,775Nondepreciable Capital Assets 656,760Depreciable Capital Assets, Net 16,785,887

Total Assets 29,499,341

Deferred Outflows of ResourcesPension 3,979,449

LiabilitiesAccounts Payable 1,125,386Accrued Wages 100,981Intergovernmental Payable 274,602Judgments Payable 766,093Accrued Interest Payable 6,712Claims Payable 93,696Long-Term Liabilities:

Due Within One Year 615,853Due In More Than One Year

Net Pension Liability (See Note 14) 12,645,455Other Amounts 35,594,080

Total Liabilities 51,222,858

Deferred Inflows of ResourcesProperty Taxes 860,605Pension 3,726,162

Total Deferred Inflows of Resources 4,586,767

Net PositionNet Investment in Capital Assets 14,877,628Restricted for:

Capital Projects 799,499Other Purposes 1,564,775

Unrestricted (Deficit) (39,572,737)

Total Net Position ($22,330,835)

See accompanying notes to the basic financial statements

City of East Cleveland, OhioStatement of Net Position

December 31, 2017

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City of East Cleveland, OhioStatement of Activities


Net (Expense)Revenue andChanges in

Program Revenues Net Position

Operating Capital Charges for Grants and Grants and Governmental

Expenses Services Contributions Contributions Activities

Governmental Activities:General Government $23,754,027 $897,422 $0 $31,388 ($22,825,217)Security of Persons and Property 5,787,523 2,020,001 660,938 0 (3,106,584)Transportation 378,400 4,825 405,706 0 32,131Community Development 1,330,405 29,771 1,187,905 0 (112,729)Leisure Time Activities 79,329 23,386 0 0 (55,943)Basic Utility Services 1,572,074 482,097 0 0 (1,089,977)Interest and Fiscal Charges 5,729 0 0 0 (5,729)

Total $32,907,487 $3,457,502 $2,254,549 $31,388 (27,164,048)

General RevenuesProperty Taxes Levied for: General Purposes 970,213 Capital Projects 192,135 Police Pension Liability 28,816 Fire Pension Liability 28,816Municipal Income Taxes Levied for General Purposes 4,575,530Hotel Tax 3,349Grants and Entitlements not Restricted to Specific Programs 1,901,815Other 276,481

Total General Revenues 7,977,155

Change in Net Position (19,186,893)

Net Position Beginning of Year (3,143,942)

Net Position End of Year ($22,330,835)


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Other TotalCommunity Governmental Governmental

General Development Funds FundsAssetsEquity in Pooled Cash and

Cash Equivalents $0 $61,679 $1,175,050 $1,236,729Accounts Receivable 67,057 0 301,651 368,708Interfund Receivable 0 0 465,193 465,193Intergovernmental Receivable 952,775 965,360 340,887 2,259,022Municipal Income Taxes Receivable 2,659,304 0 0 2,659,304Property Taxes Receivable 3,680,011 0 947,333 4,627,344Special Assessments Receivable 304,775 0 0 304,775Prepaid Items 136,589 2,568 27,271 166,428

Total Assets $7,800,511 $1,029,607 $3,257,385 $12,087,503

LiabilitiesAccounts Payable $1,012,749 $43,960 $68,677 $1,125,386Accrued Wages 74,116 2,401 24,464 100,981Intergovernmental Payable 252,121 1,713 20,768 274,602Judgments Payable 766,093 0 0 766,093Interfund Payable 439,663 85 119,141 558,889

Total Liabilities 2,544,742 48,159 233,050 2,825,951

Deferred Inflows of ResourcesProperty Taxes 684,418 0 176,187 860,605Unavailable Revenue 5,818,501 571,732 1,131,747 7,521,980

Total Deferred Inflows of Resources 6,502,919 571,732 1,307,934 8,382,585

Fund BalancesNonspendable 136,589 2,568 27,271 166,428Restricted 0 407,148 1,614,047 2,021,195Committed 0 0 87,952 87,952Unassigned (Deficit) (1,383,739) 0 (12,869) (1,396,608)

Total Fund Balances (Deficit) (1,247,150) 409,716 1,716,401 878,967

Total Liabilities, Deferred Inflows of Resources and Fund Balances $7,800,511 $1,029,607 $3,257,385 $12,087,503


City of East Cleveland, OhioBalance Sheet

Governmental FundsDecember 31, 2017

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City of East Cleveland, OhioReconciliation of Total Governmental Fund Balances to

Net Position of Governmental ActivitiesDecember 31, 2017

Total Governmental Funds Balances $878,967

Amounts reported for governmental activities in thestatement of net position are different because:

Capital assets used in governmental activities are not financialresources and therefore are not reported in the funds. 17,442,647

Other long-term assets are not available to pay for current periodexpenditures and therefore are reported as unavailable in the funds:

Delinquent Property Taxes 3,766,739Municipal Income Taxes 1,885,371Intergovernmental 1,354,526Charges for Services 513,156Miscellaneous 2,188

Total 7,521,980

An internal service fund is used by management to charge the costs of insurance to individual funds. The assets and liabilities of the internal service fund are included in governmentalactivities in the statement of net position. 434,384

In the statement of net position, interest is accrued on outstandingliabilities, whereas in governmental funds, an interest expenditure is reported when due. (6,712)

The net pension liability is not due and payable in the current period; therefore, the liability and related deferred inflows/outflows are not reported in governmental funds:

Deferred Outflows - Pension 3,979,449Net Pension Liability (12,645,455)Deferred Inflows - Pension (3,726,162)

Total (12,392,168)

Long-term liabilities are not due and payable in the current period andtherefore are not reported in the funds:

OPWC Loans (2,583,144)Judgments Payable (31,359,438)Capital Leases (178,898)Police and Fire Pension Liability (1,144,341)Compensated Absences (944,112)

Total (36,209,933)

Net Position of Governmental Activities ($22,330,835)


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Other TotalCommunity Governmental Governmental

General Development Funds FundsRevenuesProperty Taxes $797,498 $0 $205,306 $1,002,804Hotel Tax 3,349 0 0 3,349Municipal Income Taxes 4,980,197 0 0 4,980,197Intergovernmental 1,896,904 1,394,137 1,244,993 4,536,034Fees, Licenses and Permits 340,082 0 0 340,082Fines and Forfeitures 821,596 0 152,869 974,465Rentals 50,040 0 0 50,040Charges for Services 1,496,101 0 715,083 2,211,184Other 274,293 0 0 274,293

Total Revenues 10,660,060 1,394,137 2,318,251 14,372,448

ExpendituresCurrent: General Government 2,765,222 0 143,740 2,908,962 Security of Persons and Property 4,392,618 0 1,399,248 5,791,866 Transportation 10,507 0 542,140 552,647 Community Development 95,016 1,044,308 125,229 1,264,553 Leisure Time Activities 73,668 0 0 73,668 Basic Utility Services 1,545,421 0 0 1,545,421Capital Outlay 0 0 550,634 550,634Debt Service: Principal Retirement 0 50,902 134,602 185,504 Interest and Fiscal Charges 0 3,787 1,660 5,447

Total Expenditures 8,882,452 1,098,997 2,897,253 12,878,702

Excess of Revenues Over (Under) Expenditures 1,777,608 295,140 (579,002) 1,493,746

Other Financing Sources (Uses)Inception of Capital Lease 0 0 131,223 131,223Transfers In 0 0 97,479 97,479Transfers Out (97,479) 0 0 (97,479)

Total Other Financing Sources (Uses) (97,479) 0 228,702 131,223

Net Change in Fund Balances 1,680,129 295,140 (350,300) 1,624,969

Fund Balances (Deficit) Beginning of Year (2,927,279) 114,576 2,066,701 (746,002)

Fund Balances (Deficit) End of Year ($1,247,150) $409,716 $1,716,401 $878,967


City of East Cleveland, OhioStatement of Revenues, Expenditures and Changes in Fund Balances

Governmental FundsFor the Year Ended December 31, 2017

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City of East Cleveland, OhioReconciliation of the Statement of Revenues, Expenditures and Changesin Fund Balances of Governmental Funds to the Statement of Activities


Net Change in Fund Balances - Total Governmental Funds $1,624,969

Amounts reported for governmental activities in the statement of activities are different because:

Governmental funds report capital outlays as expenditures. However, in the statement of activities, the cost of those assets is allocated over their estimated useful lives as depreciation expense. This is the amount by which capital outlay exceeded depreciation in the current period.

Capital Outlay 818,568Depreciation (804,721)

Total 13,847

Revenues in the statement of activities that do not provide current financial resources are not reported as revenues:

Delinquent Property Taxes 217,176Municipal Income Taxes (404,667)Intergovernmental (348,282)Charges for Services (118,269)Other 2,188

Total (651,854)

Other financing sources, such as inception of capital lease, in the governmental fundsincrease long-term liabilities in the statement of net position. (131,223)

Contractually required contributions are reported as expenditures in governmental funds; however, the statement of net position reports these amounts as deferred outflows. 888,844

Except for amounts reported as deferred outflows/inflows, changes in the net pension liability are reported as pension expense in the statement of activities. (1,347,589)

Repayment of long-term liabilities is an expenditure in the governmental funds, but the repayment reduces long-term liabilities in the statement of net position. 185,504

In the statement of activities interest is accrued whereas in governmental funds, an interest expenditure is reported when due. (282)

Some expenses reported in the statement of activities do not require the use of current financialresources and therefore are not reported as expenditures in governmental funds.

Compensated Absences 5,165Judgments Payable (19,927,978)

Total (19,922,813)

The internal service fund used to charge the costs of insurance to individual funds is notreported in the City-wide statement of activities. Governmental fund expenditures and related internal service fund revenue are eliminated. The net revenue (expense) of theinternal service fund is allocated among the governmental activities. 153,704

Change in Net Position of Governmental Activities ($19,186,893)


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City of East Cleveland, OhioStatement of Revenues, Expenditures and Changes

In Fund Balance - Budget (Non-GAAP Basis) and ActualGeneral Fund


Variance withBudgeted Amounts Final Budget

PositiveOriginal Final Actual (Negative)

RevenuesProperty Taxes $824,447 $797,498 $797,498 $0Hotel Tax 2,153 2,300 3,349 1,049Municipal Income Taxes 5,149,513 5,500,000 5,053,301 (446,699)Intergovernmental 1,851,280 1,977,282 1,890,746 (86,536)Fees, Licenses and Permits 249,604 266,593 334,745 68,152Fines and Forfeitures 790,598 844,408 848,917 4,509Rentals 39,576 42,270 50,040 7,770Charges for Services 1,167,964 1,247,458 1,471,568 224,110Other 177,495 189,494 274,290 84,796

Total Revenues 10,252,630 10,867,303 10,724,454 (142,849)

ExpendituresCurrent: General Government 2,860,713 2,851,188 2,908,862 (57,674) Security of Persons and Property 5,068,584 5,051,733 4,579,135 472,598 Transportation 42,612 42,470 31,188 11,282 Community Development 110,851 110,482 96,483 13,999 Leisure Time Activities 74,996 74,747 73,581 1,166 Basic Utility Services 1,541,814 1,536,689 1,548,663 (11,974)

Total Expenditures 9,699,570 9,667,309 9,237,912 429,397

Excess of Revenues Over (Under) Expenditures 553,060 1,199,994 1,486,542 286,548

Other Financing Sources (Uses)Transfers Out (288,408) (287,467) (97,479) 189,988

Net Change in Fund Balance 264,652 912,527 1,389,063 476,536

Fund Deficit Beginning of Year (1,728,600) (1,728,600) (1,728,600) 0

Prior Year Encumbrances Appropriated 192,317 192,317 192,317 0

Fund Deficit End of Year ($1,271,631) ($623,756) ($147,220) $476,536


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Variance withBudgeted Amounts Final Budget

PositiveOriginal Final Actual (Negative)

RevenuesIntergovernmental $1,858,503 $2,143,792 $1,157,285 ($986,507)Charges for Services 0 0 300 300

Total Revenues 1,858,503 2,143,792 1,157,585 (986,207)

ExpendituresCurrent: Community Development 2,503,112 2,794,109 1,841,124 952,985

Net Change in Fund Balance (644,609) (650,317) (683,539) (33,222)

Fund Balance (Deficit) Beginning of Year (146,758) (146,758) (146,758) 0

Prior Year Encumbrances Appropriated 624,036 624,036 624,036 0

Fund Balance (Deficit) End of Year ($167,331) ($173,039) ($206,261) ($33,222)


City of East Cleveland, OhioStatement of Revenues, Expenditures and Changes

In Fund Balance - Budget (Non-GAAP Basis) and ActualCommunity Development Fund


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InternalService Fund -

Insurance

AssetsEquity in Pooled Cash and Cash Equivalents $434,384Interfund Receivable 93,696

Total Assets 528,080

LiabilitiesClaims Payable 93,696

Net PositionUnrestricted $434,384


City of East Cleveland, OhioStatement of Fund Net Position

Proprietary FundDecember 31, 2017

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City of East Cleveland, OhioStatement of Revenues,

Expenses and Changes in Fund Net PositionProprietary Fund



Insurance

Operating RevenuesCharges for Services $883,244

Operating ExpensesContractual Services 303,050Claims 426,490

Total Operating Expenses 729,540

Change in Net Position 153,704

Net Position Beginning of Year 280,680

Net Position End of Year $434,384


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Insurance

Increase (Decrease) in Cash and Cash Equivalents

Cash Flows from Operating ActivitiesCash Received from Interfund Services Provided $829,159Cash Payments for Goods and Services (303,050)Cash Payments for Claims (372,405)

Net Increase in Cash and Cash Equivalent 153,704

Cash and Cash Equivalents Beginning of Year 280,680

Cash and Cash Equivalents End of Year $434,384

Reconciliation of Operating Income to Net Cash Provided by Operating Activities

Operating Income $153,704

Adjustments: (Increase) Decrease in Assets: Interfund Receivable (54,085) Increase (Decrease) in Liabilities: Claims Payable 54,085

Total Adjustments 0

Net Cash Provided by Operating Activities $153,704


City of East Cleveland, OhioStatement of Cash Flows

Proprietary FundFor the Year Ended December 31, 2017

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City of East Cleveland, OhioStatement of Fiduciary Assets and Liabilities

Agency FundsDecember 31, 2017

AssetsEquity in Pooled Cash and Cash Equivalents $55,780Cash and Cash Equivalents in Segregated Accounts 285,307

Total Assets $341,087

LiabilitiesDeposits Held and Due to Others $341,087


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Notes to the Basic Financial Statements For The Year Ended December 31, 2017

Note 1 – Description of the City and Reporting Entity The City of East Cleveland is a home rule municipal corporation under the laws of the State of Ohio which operates under its own charter. The current Charter, which provides for a Council/Mayor form of government, was adopted in 1918. The Mayor, elected by the voters for a four-year term, is the head of the municipal government for ceremonial, administrative and executive purposes and presides at Council meetings. As the chief conservator of the peace, he oversees the enforcement of all laws and ordinances. He also appoints all department heads and executes all contracts, conveyances and evidences of indebtedness of the City. Legislative authority is vested in a five member council with all five members elected at large for two-year staggered terms. Council enacts ordinances and resolutions relating to tax levies, appropriates and borrows money and accepts bids for materials and services and other municipal purposes. Effective January 5, 2012, the Auditor of State declared the City of East Cleveland, Cuyahoga County, to be in a state of fiscal caution in accordance with Section 118.025 (A) of the Ohio Revised Code. The declaration was based on a review of fund financial data at November 30, 2011. The City of East Cleveland had deficit fund balances in the amount of ($5,872,222) and the deficits exceeded two percent of the estimated revenue of those funds by $5,451,535. The Auditor of State declared the City of East Cleveland in fiscal watch on May 23, 2012. This declaration was based upon the failure of the City to provide an acceptable proposal for correcting the conditions that prompted the declaration of fiscal caution. 118.023 (B) of the Ohio Revised Code requires that within 120 days after a declaration of fiscal watch that the Mayor of the municipal corporation declared to be in fiscal watch submit to the Auditor of State a financial recovery plan that identifies the actions to be taken to eliminate the City’s fiscal watch conditions including the approximate dates for beginning and completing the actions, and include a five-year forecast reflecting the effects of those actions. Upon review of the financial recovery plan submitted to the Auditor’s office, the Auditor of State has determined that the City of East Cleveland has failed to submit a feasible financial recovery plan for correcting the conditions that prompted the declaration of fiscal watch. On October 9, 2012, the Auditor of State’s office declared the City of East Cleveland to be in a state of fiscal emergency in accordance with Section 118.03, Ohio Revised Code. The declaration resulted in the establishment of a Financial Planning and Supervision Commission. The Commission is comprised of the Mayor of the City, Council President, three financial consultants from various corporations and/or organizations within the City and two representatives from the State of Ohio. The City has 120 days after the first meeting of the Commission to approve a financial recovery plan. Once the plan has been adopted, the City’s discretion is limited in that all financial activity of the City must be in accordance with the plan. See Note 20 for more information on the City’s fiscal emergency status. Reporting Entity A reporting entity is comprised of the primary government, component units and other organizations that are included to ensure that the financial statements are not misleading. The primary government of the City consists of all funds, agencies, departments, and offices that are not legally separate from the City. For the City of East Cleveland, this includes the departments that provide the following services: police protection, firefighting and prevention, street maintenance and repairs, public improvements, community development (planning and zoning), culture and recreation, refuse collection, sewer and general administrative and legislative services. The City of Cleveland provides water to the residents of the City. The City of Cleveland bills the customers directly. The City contracts with the Northeast Ohio Regional Sewer District to provide sewage treatment for the City.

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Component units are legally separate organizations for which the City is financially accountable. The City is financially accountable for an organization if the City appoints a voting majority of the organization's governing board and (1) the City is able to significantly influence the programs or services performed or provided by the organization; or (2) the City is legally entitled to or can otherwise access the organization's resources; the City is legally obligated or has otherwise assumed the responsibility to finance deficits of, or provide financial support to, the organization. Component units may also include organizations that are fiscally dependent on the City in that the City approves the budget, the issuance of debt or the levying of taxes, and there is a potential for the organization to provide specific benefits to, or impose specific burden on, the primary government. Currently, the City has no component units. Note 2 – Summary of Significant Accounting Policies The financial statements of the City of East Cleveland have been prepared in conformity with generally accepted accounting principles (GAAP) as applied to local governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and financial principles. The more significant of the City’s accounting policies are described below. Basis of Presentation The City’s basic financial statements consist of government-wide statements, including a statement of net position and a statement of activities, and fund financial statements, which provide a more detailed level of financial information. Government-wide Financial Statements The statement of net position and the statement of activities display information about the City as a whole. These statements include the financial activities of the primary government, except for fiduciary funds. The activity of the internal service fund is eliminated to avoid “doubling up” revenues and expenses. The statements distinguish between those activities of the City that are governmental and those that are considered business-type. The City, however, has no business-type activities. The statement of net position presents the financial condition of the governmental activities of the City at year-end. The statement of activities presents a comparison between direct expenses and program revenues for each program or function of the City’s governmental activities of the City. Direct expenses are those that are specifically associated with a service, program or department and therefore clearly identifiable to a particular function. Program revenues include charges paid by the recipient of the goods or services offered by the program, grants and contributions that are restricted to meeting the operational or capital requirements of a particular program and interest earned on grants that is required to be used to support a particular program. Revenues which are not classified as program revenues are presented as general revenues of the City, with certain limited exceptions. The comparison of direct expenses with program revenues identifies the extent to which each business segment or governmental program is self-financing or draws from the general revenues of the City. Fund Financial Statements During the year, the City segregates transactions related to certain City functions or activities in separate funds in order to aid financial management and to demonstrate legal compliance. Fund financial statements are designed to present financial information of the City at this more detailed level. The focus of governmental fund financial statements is on major funds. Each major fund is presented in a separate column. The internal service fund is presented in a single column on the face of the proprietary fund statements. Nonmajor funds are aggregated and presented in a single column. Fiduciary funds are reported by type.

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Fund Accounting The City uses funds to maintain its financial records during the year. A fund is defined as a fiscal and accounting entity with a self-balancing set of accounts. There are three categories of funds: governmental, proprietary and fiduciary. Governmental Funds Governmental funds are those through which most governmental functions are financed. Governmental fund reporting focuses on the sources, uses and balances of current financial resources. Expendable assets are assigned to the various governmental funds according to the purposes for which they may or must be used. Current liabilities are assigned to the fund from which they will be paid. The difference between governmental fund assets and liabilities and deferred inflows of resources is reported as fund balance. The following are the City’s major governmental funds:

General Fund The general fund is the operating fund of the City and is used to account for and report all financial resources except those required to be accounted for and reported in another fund. The general fund balance is available to the City for any purpose provided it is expended or transferred according to the charter of the City of East Cleveland and/or the general laws of Ohio. Community Development Fund This fund accounts for and reports restricted federal grants for administrative costs of the Community Development Block Grant Program.

The other governmental funds of the City account for grants and other resources, whose use is restricted, committed or assigned to a particular purpose. Proprietary Funds Proprietary fund reporting focuses on the determination of operating income, changes in net position, financial position and cash flows. Proprietary funds are classified as either enterprise or internal service. The City has no enterprise funds.

Internal Service Fund The internal service fund accounts for the financing of services provided by one department or agency to other departments or agencies of the City on a cost-reimbursement basis. The City’s only internal service fund reports on the hospitalization benefits for employee hospital/medical, prescription and dental plans.

Fiduciary Funds Fiduciary fund reporting focuses on net position and changes in net position. The fiduciary fund category is split into four classifications: pension trust funds, investment trust funds, private-purpose trust funds and agency funds. Trust funds are used to account for assets held by the City under a trust agreement for individuals, private organizations, or other governments and are therefore not available to support the City’s own programs. Agency funds are custodial in nature (assets equal liabilities) and do not involve measurement of results of operations. The City’s only fiduciary funds are agency funds which accounts for miscellaneous deposits, municipal court bank accounts and employee deductions. Measurement Focus Government-wide Financial Statements The government-wide financial statements are prepared using a flow of economic resources measurement focus. All assets and deferred outflows of resources and all liabilities and deferred inflows of resources associated with the operation of the City are included on the statement of net position. The statement of activities presents increases (i.e. revenues) and decreases (i.e. expenses) in total net position.

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Fund Financial Statements All governmental funds are accounted for using a flow of current financial resources measurement focus. With this measurement focus, only current assets and deferred outflows of resources and current liabilities and deferred inflows of resources generally are included on the balance sheet. The statement of revenues, expenditures and changes in fund balances reports on the sources (i.e., revenues and other financing sources) and uses (i.e., expenditures and other financing uses) of current financial resources. This approach differs from the manner in which the governmental activities of the government-wide financial statements are prepared. Governmental fund financial statements, therefore, include a reconciliation with brief explanations to better identify the relationship between the government-wide statements and the statements for the governmental funds. Like the government-wide statements, the internal service fund is accounted for on a flow of economic resources measurement focus. All assets and deferred outflows of resources and all liabilities and deferred inflows of resources associated with the operation of this fund are included on the statement of fund net position. The statement of revenues, expenses and changes in fund net position presents increases (i.e., revenues) and decreases (i.e., expenses) in total net position. The statement of cash flows provides information about how the City finances and meets the cash flow needs of its internal service fund. Basis of Accounting Basis of accounting determines when transactions are recorded in the financial records and reported on the financial statements. Government-wide financial statements and the statements presented for proprietary and fiduciary funds are prepared using the accrual basis of accounting. Governmental funds use the modified accrual basis of accounting. Differences in the accrual and modified accrual basis of accounting arise in the recognition of revenue, in the recording of deferred outflows/inflows of resources, and in the presentation of expenses versus expenditures. Revenues - Exchange and Nonexchange Transactions Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the year in which the resources are measurable and become available. Available means that the resources will be collected within the current year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current year. For the City, available means expected to be received within sixty days of year-end. Nonexchange transactions, in which the City receives value without directly giving equal value in return, include income taxes, property taxes, grants, entitlements and donations. On an accrual basis, revenue from income taxes is recognized in the period in which the income is earned. Revenue from property taxes is recognized in the year for which the taxes are levied (See Note 8). Revenue from grants, entitlements and donations is recognized in the year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, which specify the year when the resources are required to be used or the year when use is first permitted, matching requirements, in which the City must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the City on a reimbursement basis. On the modified accrual basis, revenue from nonexchange transactions must also be available before it can be recognized. Under the modified accrual basis, the following revenue sources are considered to be both measurable and available at year-end: income taxes, state-levied locally shared taxes (including gasoline tax and motor vehicle license fees), fines and forfeitures, interest, grants and entitlements and rentals.

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Deferred Outflows/Inflows of Resources In addition to assets, the statements of financial position will sometimes report a separate section for deferred outflows of resources. Deferred outflows of resources, represents a consumption of net position that applies to a future period and will not be recognized as an outflow of resources (expense/expenditure) until then. For the City, deferred outflows of resources are reported on the government-wide statement of net position. The deferred outflows of resources related to pension are explained in Note 14. In addition to liabilities, the statements of financial position report a separate section for deferred inflows of resources. Deferred inflows of resources represent an acquisition of net position that applies to a future period and will not be recognized as an inflow of resources (revenue) until that time. For the City, deferred inflows of resources include property taxes, unavailable revenue and pension. Property taxes represent amounts for which there is an enforceable legal claim as of December 31, 2017, but which were levied to finance year 2018 operations. These amounts have been recorded as a deferred inflow on both the government-wide statement of net position and the governmental fund financial statements. Unavailable revenue is reported only on the governmental funds balance sheet, and represents receivables which will not be collected within the available period. For the City unavailable revenue includes delinquent property taxes, income taxes, charges for services, intergovernmental grants and other. The details of these unavailable revenues are identified on the Reconciliation of Total Governmental Fund Balance to Net Position of Governmental Activities found on page 17. These amounts are deferred and recognized as an inflow of resources in the period the amounts become available. Deferred inflows of resources related to pension are reported on the government-wide statement of net position. (See Note 14) Expenses/Expenditures On the accrual basis of accounting, expenses are recognized at the time they are incurred. The measurement focus of governmental fund accounting is on decreases in net financial resources (expenditures) rather than expenses. Expenditures are generally recognized in the accounting period in which the related fund liability is incurred, if measurable. Allocations of cost, such as depreciation and amortization, are not recognized in governmental funds. Pensions For purposes of measuring the net pension liability, deferred outflows of resources and deferred inflows of resources related to pensions, and pension expense, information about the fiduciary net position of the pension plans and additions to/deductions from their fiduciary net positon have been determined on the same basis as they are reported by the pension systems. For this purpose, benefit payments (including refunds of employee contributions) are recognized when due and payable in accordance with the benefit terms. The pension systems report investments at fair value.

Cash and Cash Equivalents To improve cash management, cash received by the City is pooled. Individual fund integrity is maintained through City records. Interest in the pool is presented as “Equity in Pooled Cash and Cash Equivalents”. The City had no investments during the year or at year end. Investment procedures are restricted by the provisions of the Ohio Revised Code. The City received no interest revenue in 2017. Investments of the cash management pool and investments with an original maturity of three months or less at the time they are purchased by the City are presented on the financial statements as cash equivalents.

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Prepaid Items Payments made to vendors for services that will benefit periods beyond December 31, 2017, are recorded as prepaid items using the consumption method by recording a current asset for the prepaid amount and reflecting the expenditure/expense in the year in which the services are consumed. Capital Assets General capital assets are capital assets which are associated with and generally arise from governmental activities. They generally result from expenditures in the governmental funds. General capital assets are reported in the governmental activities column of the government-wide statement of net position but are not reported in the fund financial statements. All capital assets are capitalized at cost (or estimated historical cost) and updated for additions and retirements during the year. Donated capital assets are recorded at their acquisition values as of the date received. The City was able to estimate the historical cost for the initial reporting of infrastructure by backtrending (i.e., estimating the current replacement cost of the infrastructure to be capitalized and using an appropriate price-level index to deflate the cost of the acquisition year or estimated acquisition year). The City maintains a capitalization threshold of five hundred dollars. Improvements are capitalized; the costs of normal maintenance and repairs that do not add to the value of the asset or materially extended an asset’s life are not. All capital assets are depreciated except for land. Improvements are depreciated over the remaining useful lives of the related capital assets. Useful lives for infrastructure were estimated based on the City’s historical records of necessary improvements and replacements, and new construction. Depreciation is computed using the straight-line method over the following useful lives:

Description Estimated LivesBuildings and Improvements 15 - 45 yearsEquipment 3 - 10 yearsVehicles 5 - 10 yearsInfrastructure 15 - 50 years

The City’s infrastructure consists of traffic lights, street lights, light poles, culverts, bridges, roads and storm sewers and includes infrastructure acquired prior to December 31, 1980. Interfund Balances On fund financial statements, receivables and payables resulting from short-term interfund loans are classified as “interfund receivables/payables.” These amounts are eliminated in the governmental column of the statement of net position. Compensated Absences Vacation benefits are accrued as a liability as the benefits are earned if the employees' rights to receive compensation are attributable to services already rendered and it is probable that the employer will compensate the employees for the benefits through paid time off or some other means. The City records a liability for all accumulated unused vacation time when earned for all employees with more than one year of service.

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Sick leave benefits are accrued as a liability using the termination method. An accrual for earned sick leave is made to the extent that it is probable that benefits will result in termination payments. The liability is an estimate on the City’s past experience of making termination payments. The amount is based on the sick leave accumulated and employee’s wage rates at December 31, taking into consideration any limits specified in the City’s termination policy.

Accrued Liabilities and Long-Term Obligations

All payables, accrued liabilities and long-term obligations are reported in the government-wide financial statements and all payables, accrued liabilities and long-term obligations payable from proprietary funds are reported on the proprietary fund financial statements.

In general, governmental fund payables and accrued liabilities that, once incurred, are paid in a timely manner and in full from current financial resources are reported as obligations of the funds. However, claims and judgments and compensated absences that will be paid from governmental funds are reported as a liability in the fund financial statements only to the extent that they are due for payment during the current year. Long-term loans and capital leases are recognized as a liability on the governmental fund financial statements when due. Net pension liability should be recognized in the governmental funds to the extent that benefit payments are due and payable and the pension plan’s fiduciary net position is not sufficient for payment of those benefits.

Fund Balance

Fund balance is divided into five classifications based primarily on the extent to which the City is bound to observe constraints imposed upon the use of the resources in the governmental funds. The classifications are as follows:

Nonspendable The nonspendable fund balance category includes amounts that cannot be spent because they are not in spendable form, or legally or contractually required to be maintained intact. The “not in spendable form” criterion includes items that are not expected to be converted to cash.

Restricted Fund balance is reported as restricted when constraints placed on the use of resources are either externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments or is imposed by law through constitutional provisions or enabling legislation (City ordinances).

Enabling legislation authorizes the City to assess, levy, charge, or otherwise mandates payment of resources (from external resource providers) and includes a legally enforceable requirement that those resources be used only for the specific purposes stipulated in the legislation. Legal enforceability means that the City can be compelled by an external party-such as citizens, public interest groups, or the judiciary to use resources created by enabling legislation only for the purposes specified by the legislation.

Committed The committed fund balance classification includes amounts that can be used only for the specific purposes imposed by formal action (ordinance or resolution as both are equally binding) of City Council. Those committed amounts cannot be used for any other purpose unless City Council removes or changes the specified use by taking the same type of action (ordinance or resolution) it employed to previously commit those amounts. In contrast to fund balance that is restricted by enabling legislation, committed fund balance classification may be redeployed for other purposes with appropriate due process. Constraints imposed on the use of committed amounts are imposed by City Council, separate from the authorization to raise the underlying revenue; therefore, compliance with these constraints is not considered to be legally enforceable. Committed fund balance also incorporates contractual obligations to the extent that existing resources in the fund have been specifically committed for use in satisfying those contractual requirements.

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Assigned Amounts in the assigned fund balance classification are intended to be used by the City for specific purposes but do not meet the criteria to be classified as restricted or committed. In governmental funds other than the general fund, assigned fund balance represents the remaining amount that is not restricted or committed. These amounts are assigned by City Council. In the general fund, assigned amounts represent intended uses established by City Council or a City official delegated that authority by City Charter or ordinance, or by State Statute.

Unassigned Unassigned fund balance is the residual classification for the general fund and includes all spendable amounts not contained in the other classifications. In other governmental funds, the unassigned classification is used only to report a deficit balance.

The City applies restricted resources first when expenditures are incurred for purposes for which either restricted or unrestricted (committed, assigned, and unassigned) amounts are available. Similarly, within unrestricted fund balance, committed amounts are reduced first followed by assigned, and then unassigned amounts when expenditures are incurred for purposes for which amounts in any of the unrestricted fund balance classifications could be used.

Net Position

Net position represents the difference between all other elements in a statement of financial position. Net investment in capital assets consists of capital assets, net of accumulated depreciation, reduced by the outstanding balances of any borrowing used for the acquisition, construction or improvement of those assets. Net position is reported as restricted when there are limitations imposed on their use either through constitutional provisions or enabling legislation adopted by the City or through external restrictions imposed by creditors, grantors or laws or regulations of other governments. Net position restricted for other purposes include resources restricted for police and fire pensions, school crossing guard program and law enforcement.

The City applies restricted resources when an expense is incurred for purposes for which both restricted and unrestricted net position is available.

Operating Revenues and Expenses

Operating revenues are those revenues that are generated directly from the primary activity of the proprietary funds. For the City, these revenues are charges for the insurance internal service fund. Operating expenses are necessary costs incurred to provide the good or service that is the primary activity of the fund. Revenues and expenses which do not meet this definition are reported as non-operating.

Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.

Budgetary Process

All funds, except agency funds, are legally required to be budgeted and appropriated. The major documents prepared are the tax budget, the certificate of estimated resources, and the appropriations resolution, all of which are prepared on the budgetary basis of accounting. The tax budget demonstrates a need for existing or increased tax rates. The certificate of estimated resources establishes a limit on the amount Council may appropriate. The appropriations resolution is Council’s authorization to spend resources and sets annual limits on expenditures plus encumbrances at the level of control selected by Council. The legal level of control has been established by Council at the department and personal services and other object level for all budgeted funds. Budgetary modifications at the legal level of control may only be made by resolution of Council.

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The certificate of estimated resources may be amended during the year if projected increases or decreases in revenue are identified by the finance director. The amounts reported as the original and final budgeted amounts on the budgetary statements reflect the amounts on the certificate of estimated resources in effect at the time original and final appropriations were enacted by Council. The appropriation resolution is subject to amendment throughout the year with the restriction that appropriations cannot exceed estimated resources. The amounts reported as the original budgeted amounts reflect the first appropriation resolution for that fund that covered the entire year, including amounts automatically carried forward from prior years. The amounts reported as the final budgeted amounts represent the final appropriation amounts passed by Council during the year. Note 3 – Change in Accounting Principle For 2017, the City implemented the Governmental Accounting Standards Board’s (GASB) Implementation Guide No. 2016-1. These changes were incorporated in the City’s 2017 financial statements; however, there was no effect on beginning net position/fund balance. Note 4 – Compliance and Accountability Compliance The City was placed in fiscal emergency as a result of failing to submit a feasible financial recovery plan to correct the conditions that prompted the declaration of fiscal watch. A portion of that plan was to have included eliminating deficit funds that are contrary to the provisions of Chapter 5705. These violations were cited extensively (repeatedly) in the reports leading up to the declaration of emergency. While in emergency, it is anticipated that these violations will continue until the City regains financial stability. Until that time, only new violations in funds that were not in deficit at the time of emergency declaration will be cited.

The following fund had expenditures plus encumbrances in excess of appropriations, contrary to Ohio Revised Code Section 5705.41.

AppropriationsPlus Prior Year Expenditures Plus

Fund Encumbrances Encumbrances Excess

Special Revenue Funds:COPS Universal Grant $137,206 $144,537 ($7,331)

The City had negative cash balances in the following fund indicating that revenue from other sources were used to pay obligations of this fund contrary to Ohio Revised Code Section 5705.10:

Amount

General Fund $274,580

Special Revenue FundsFEMA Grant 109,304

Fund

Although these budgetary violations and cash deficits were not corrected by year end, management has indicated that appropriations will be closely monitored to prevent future violations.

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Accountability The following funds had deficit fund balances as of December 31, 2017:

Amount

General Fund $1,247,150

Special Revenue FundsFEMA Grant 9,084COPS Grant 168

Fund

The general fund concluded 2017 with a deficit fund balance of $1,247,150. The City has experienced a financial shortfall which has resulted in deficit spending in the general fund. The City is working on a plan to alleviate the financial shortfall. The special revenue funds’ deficits resulted from adjustments for accrued liabilities. The general fund is liable for any deficit and provides transfers when cash is required, not when accruals occur. Note 5 – Fund Balances Fund balance is classified as nonspendable, restricted, committed, assigned and/or unassigned based primarily on the extent to which the City is bound to observe constraints imposed upon the use of the resources in the government funds. The constraints placed on fund balance for the major governmental funds and all other governmental funds are presented as follows:

OtherCommunity Governmental

Fund Balances General Development Funds Total

Nonspendable:Prepaids $136,589 $2,568 $27,271 $166,428

Restricted for:Street Improvements 0 0 136,698 136,698Police Programs 0 0 95,220 95,220Fire Programs 0 0 35,475 35,475Cleveland Water 0 0 227,196 227,196Court Programs 0 0 867,590 867,590Community Development Programs 0 407,148 44,006 451,154Capital Improvements 0 0 190,585 190,585Other Purposes 0 0 17,277 17,277

Total Restricted 0 407,148 1,614,047 2,021,195

Committed to:Ambulance Services 0 0 87,952 87,952

Unassigned (Deficit) (1,383,739) 0 (12,869) (1,396,608)

Total Fund Balances (Deficit) ($1,247,150) $409,716 $1,716,401 $878,967

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Note 6 - Budgetary Basis of Accounting While reporting financial position, results of operations, and changes in fund balance on the basis of generally accepted accounting principles (GAAP), the budgetary basis as provided by law is based upon accounting for certain transactions on a basis of cash receipts, disbursements, and encumbrances. The Statements of Revenues, Expenditures and Changes in Fund Balance - Budget (Non-GAAP Basis) and Actual are presented for the general and major special revenue funds to provide a meaningful comparison of actual results with the budget. The major differences between the budget basis and the GAAP basis are as follows:

1. Revenues are recorded when received in cash (budget) as opposed to when susceptible to accrual (GAAP).

2. Expenditures are recorded when paid in cash (budget) as opposed to when the liability is

incurred (GAAP).

3. Encumbrances are treated as expenditures (budget) rather than as restricted, committed or assigned fund balance (GAAP).

4. Unrecorded cash represents amounts received but not reported by the City on the operating statements (budget), but which is reported on the GAAP basis operating statements.

5. Budgetary revenues and expenditures of the water, sewer, and sewer assessments funds are classified to general fund for GAAP Reporting.

The adjustments necessary to convert the results of operations for the year on the GAAP basis to the budget basis for the general and major special revenue funds are as follows:

CommunityGeneral Development

GAAP Basis $1,680,129 $295,140Net Adjustment for Revenue Accruals 162,151 (236,552)Net Adjustment for Expenditures Accruals (157,591) (474,187)Beginning Unrecorded Cash (55,595) 0Ending Unrecorded Cash (41,179) 0Perspective Differences:

Water (324) 0Sewer (659) 0

Encumbrances (197,869) (267,940)Budget Basis $1,389,063 ($683,539)

Net Change in Fund Balance

Note 7 – Deposits and Investments The City has chosen to follow State statutes and classify monies held by the City into three categories. Active monies are public monies determined to be necessary to meet current demands upon the City treasury. Active monies must be maintained either as cash in the City treasury, in commercial accounts payable or withdrawable on demand, including negotiable order of withdrawal (NOW) accounts, or in money market deposit accounts.

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Inactive deposits are public deposits that the Council has identified as not required for use within the current five year period of designation of depositories. Inactive deposits must either be evidenced by certificates of deposit maturing not later than the end of the current period of designation of depositories, or by savings or deposit accounts including, but not limited to, passbook accounts. Interim deposits are deposits of interim monies. Interim monies are those monies which are not needed for immediate use but which will be needed before the end of the current period of designation of depositories. Interim deposits must be evidenced by time certificates of deposit maturing not more than one year from the date of deposit or by savings or deposit accounts, including passbook accounts. Protection of the City’s deposits is provided by the Federal Deposit Insurance Corporation (FDIC), by eligible securities pledged by the financial institution as security for repayment, or by the financial institution’s participation in the Ohio Pooled Collateral System (OPCS), a collateral pool of eligible securities deposited with a qualified trustee and pledged to the Treasurer of State to secure the repayment of all public monies deposited in the financial institution. Interim monies held by the City can be deposited or invested in the following securities:

1. United States Treasury bills, bonds, notes, or any other obligation or security issued by the United States Treasury, or any other obligation guaranteed as to principal and interest by the United States;

2. Bonds, notes, debentures, or any other obligations or securities issued by any federal government

agency or instrumentality including, but not limited to, the Federal National Mortgage Association, Federal Home Loan Bank, Federal Farm Credit Bank, Federal Home Loan Mortgage Corporation, and Government National Mortgage Association. All federal agency securities shall be direct issuances of federal government agencies or instrumentalities;

3. No-load money market mutual funds consisting exclusively of obligations described in division (1)

or (2) and repurchase agreements secured by such obligations provided that investments in securities described in this division are made only through eligible institutions;

4. Time certificates of deposit or savings or deposit accounts including, but not limited to, passbook accounts;

5. Bonds and other obligations of the State of Ohio and with certain limitations bonds and other

obligations of political subdivisions of the State of Ohio;

6. The State Treasurer’s investment pool (STAROhio);

7. Certain banker’s acceptances and commercial paper notes for a period not to exceed one hundred eighty days in an amount not to exceed 40 percent of the interim monies available for investment at any one time if training requirements have been met; and

8. Written repurchase agreements in the securities described in (1) or (2) provided the market value of

the securities subject to the repurchase agreement must exceed the principal value of the agreement by at least two percent and be marked to market daily, and the term of the agreement must not exceed thirty days.

Investments in stripped principal or interest obligations, reverse repurchase agreements, and derivatives are prohibited. The issuance of taxable notes for the purpose of arbitrage, the use of leverage, and short selling are also prohibited. An investment must mature within five years from the date of purchase unless matched to a specific obligation or debt of the City, and must be purchased with the expectation that it will be held to maturity.

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Investments may only be made through specified dealers and institutions. Payment for investments may be made only upon delivery of the securities representing the investments to the treasurer or if the securities are not represented by a certificate, upon receipt of confirmation of transfer from the custodian. Deposits Custodial Credit Risk for deposits is the risk that in the event of bank failure, the City will not be able to recover deposits or collateral securities that are in possession of an outside party. At year end, $1,898,380 of the City’s bank balance of $2,185,291 was uninsured and uncollateralized. Although the securities were held by the pledging financial institutions’ trust department and all statutory requirements for the investment of money had been followed, noncompliance with Federal requirements could potentially subject the City to a successful claim by the FDIC. The City has no deposit policy for custodial risk beyond the requirements of State statute. Ohio law requires that deposits either be insured or be protected by:

Eligible securities pledged to the City and deposited with a qualified trustee by the financial institution as security for repayment whose market value at all times shall be at least 105 percent of the deposits being secured; or Participation in the Ohio Pooled Collateral System (OPCS), a collateral pool of eligible securities deposited with a qualified trustee and pledged to the Treasurer of State to secure the repayment of all public monies deposited in the financial institution. OPCS requires the total market value of the securities pledged to be 102 percent of the deposits being secured or a rate set by the Treasurer of State.

The City has a financial institution in the process of joining OPCS; however, at December 31, 2017, the financial institutions still maintained their own collateral pool of eligible securities deposited with a qualified trustee and pledged to secure the repayment of all public monies deposited in the financial institution whose market value at all times shall be at least 102 percent of the deposits being secured. Note 8 - Receivables Receivables at December 31, 2017, consisted primarily of municipal income taxes, property taxes, intergovernmental receivables arising from entitlements and shared revenues, and accounts (billings for user charged services, including unbilled utility services). All receivables are expected to be collected within one year except property taxes, income taxes and accounts receivable which have significant delinquencies and are expected to be collected over several years. At December 31, 2017, the total amount of delinquent special assessments was $61,147. These delinquencies will be collected in the general fund. Property Taxes Property taxes include amounts levied against all real, public utility and tangible personal property located in the City. Property tax revenue received during 2017 for real and public utility property taxes represents collections of 2016 taxes. 2017 real property taxes are levied after October 1, 2017 on the assessed value as of January 1, 2017, the lien date. Assessed values are established by state law at 35 percent of appraised market value. 2017 real property taxes are collected in and intended to finance 2018.

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Real property taxes are payable annually or semi-annually. If paid annually, payment is due December 31; if paid semi-annually, the first payment is due December 31, with the remainder payable by June 20. Under certain circumstances, state statute permits later payment dates to be established. Public utility tangible personal property currently is assessed at varying percentages of true value; public utility real property is assessed at 35 percent of true value. 2017 public utility property taxes which became a lien December 31, 2016, are levied after October 1, 2017, and are collected in 2018 with real property taxes. The full tax rate for all City operations for the year ended December 31, 2017, was $12.70 per $1,000 of assessed value. The assessed values of real and tangible personal property upon which 2017 property tax receipts were based are as follows:

Real EstateResidential/Agriculture $71,179,240Commercial Industrial/Public Utility 34,440,520

Tangible Personal PropertyPublic Utility 11,797,580

Total Valuation $117,417,340

The County Fiscal Officer collects property taxes on behalf of all taxing districts in the County, including the City of East Cleveland, and periodically remits to the City its portion of the taxes collected. Property taxes receivable represents real property taxes, public utility taxes and outstanding delinquencies which are measurable as of December 31, 2017 and for which there is an enforceable legal claim. In governmental funds, the portion of the receivable not levied to finance 2017 operations is offset to deferred inflows of resources – property taxes. On an accrual basis, collectible delinquent property taxes have been recorded as a receivable and revenue, while on a modified accrual basis the revenue has been reported as deferred inflows of resources – unavailable revenue. Income Taxes The City levies a municipal income tax of two percent on all salaries, wages, lottery winnings, commissions and other compensation, and net profits earned within the City as well as on incomes of residents earned outside of the City. Employers within the City are required to withhold income tax on employee compensation and remit the tax to the Regional Income Tax Agency (RITA) at least quarterly. Corporations and other individual taxpayers are required to file a declaration annually and quarterly estimated tax payments are recommended. Taxes collected by RITA in one month are remitted to the City on the first and tenth business days of the following month. Income tax proceeds are received by the general fund.

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Intergovernmental Receivables A summary of intergovernmental receivables follows:

Governmental Activities AmountCDBG/Home Grants $965,360Local Government 871,162Gas/Excise Tax 146,963FEMA Grant 111,880Homestead & Rollback 99,871Permissive Tax 27,929Motor Vehicle Tax 21,914VOCA Grant 11,755Cuyahoga County 2,188Total $2,259,022

Note 9 - Tax Abatements As of December 31, 2017, the City provides tax abatements through two Community Reinvestment Areas. Pursuant to Ohio Revised Code Chapter 5709, the City established two Community Reinvestment Areas to provide property tax abatements to encourage employment growth in the City. Abatements are obtained if the entity meets certain criteria outlined in the Community Reinvestment Area Agreement. The amount of the abatement is deducted from the recipient’s tax bill. The values of the taxes being abated are $217 and $25,859.

Note 10 – Leases Operating Leases The City has entered into four operating leases. The first one is with Mercantile Street Real Estate, Limited, for the purpose of leasing 3,300 square feet of a building in the City for storage facilities. This is a cancelable lease that is renewed annually. The remaining three are with King Management Group (KMG), Limited, a related party. One lease is for the purpose of leasing 1,500 square feet of a building in the City to house the Domestic Violence Department. This is a cancelable lease that is renewed annually. The City pays $2,795 per quarter. Another lease is to house storage for the finance department. This lease is renewed every three years. The City pays $6,000 per year. The final lease is for the Municipal Court Mini-Station and Community Outreach Office. This lease is renewed every three years. The City pays $1,600 per trimester. For all leases, the City must provide the lessor written notice at least 90 days prior to termination of the lease. Capital Leases The City has a capital lease for four police vehicles, a front loader and a salt truck. Capital lease payments are reflected as debt service expenditures in various funds on the basic financial statements. The governmental equipment has been capitalized in the amount of $482,636, the present value of the minimum lease payments at the inception of the leases.

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Governmental Activities:Assets

Vehicles $482,636Accumulated Depreciation

Vehicles 83,996

Governmental Activities Capital Assets, Net $398,640

The following is a schedule of the future minimum lease payments required under the capital leases and the present value of the minimum lease payments as of December 31, 2017.

Year Amount2018 $88,5852019 19,5092020 19,5092021 19,5092022 19,509

2023-2024 33,657200,278

Less: Amount representing interest (21,380)

Present Value of minimum lease payments $178,898

Note 11 - Capital Assets Capital asset activity for the year ended December 31, 2017, was as follows:

Balance Balance12/31/2016 Additions Deductions 12/31/2017

Governmental ActivitiesCapital Assets not being Depreciated:

Land $656,760 $0 $0 $656,760

Capital Assets being Depreciated:Buildings and Improvements 4,463,784 0 0 4,463,784Equipment 3,677,706 210,563 0 3,888,269Vehicles 5,027,458 174,285 0 5,201,743Infrastructure 23,948,913 433,720 0 24,382,633

Total Capital Assets being Depreciated 37,117,861 818,568 0 37,936,429

Less Accumulated Depreciation:Buildings and Improvements (3,600,195) (54,772) 0 (3,654,967)Equipment (3,473,241) (114,932) 0 (3,588,173)Vehicles (4,257,015) (221,381) 0 (4,478,396)Infrastructure (9,015,370) (413,636) 0 (9,429,006)

Total Accumulated Depreciation (20,345,821) (804,721) 0 (21,150,542)

Total Capital Assets being Depreciated, Net 16,772,040 13,847 0 16,785,887

Governmental Activities Capital Assets, Net $17,428,800 $13,847 $0 $17,442,647

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Depreciation expense was charged to governmental functions as follows:

General Government $293,066

Security of Persons and Property 160,440

Leisure Time Activities 3,534

Basic Utility Services 110

Community Environment 3,518

Transportation 344,053

Total Depreciation Expense $804,721

Note 12 – Employee Benefits Compensated Absences All eligible employees receive 15 sick days per year. Unused sick leave benefits are allowed to accumulate indefinitely. Upon retirement, non-bargaining unit employees and policemen receive payment for one-fourth of accumulated sick leave up to 240 hours. The contracts for Police, Fire and Union Employees, may have different language as it relates to sick days; please read the respective contracts to determine how many sick days each employees in these category are allowed. Employees can hold up to two years’ worth of vacation leave. Because of extenuating circumstances, police and fire employees may have been allowed to hold more than two years’ worth of vacation leave. Upon retirement, termination or death of the employee, vacation is paid for time the employee has earned but not used. Health Care Benefits Since 2014, the City has been self-insured for health care benefits for City Employees. The City contracts with three third party administrators. Claims are administrated by Commerce Benefit Group, Performance Health and Mutual Health Services for medical, dental and vision claims, respectively. The City continues to provide coverage to eligible employees in a four-tiered rate structure as follows:

Hospital Dental Vision

Single $34.67 $8.27 $5.19Employee and Spouse $62.80 $24.95 $15.34Employee and One Child $56.50 $24.95 $15.34Family $91.18 $24.95 $15.34

Life Insurance Life insurance is offered to employees through Colonial Life & Accident Insurance Company. Police receive up to $50,000 coverage for $.15/$1,000 coverage per month; firemen receive up to $30,000 coverage for $.15 per/$1,000 coverage per month. The fire chief and police chief receive up to $50,000 coverage for $.15 per/$1,000 coverage per month. For police, the City pays the full amount. For fire, the City pays half the monthly premium and the employee pays the other half. All other City employees pay $.15 per $1,000 of coverage per month up to a maximum of $50,000.

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Note 13 – Long-Term Obligations Original issue amounts and year of maturity of the City’s governmental loans were as follows:

Original Year ofDebt Issue Issue Maturity

Governmental ActivitiesOPWC Loans: 2003 Euclid Avenue Rehabilitation $2,951,444 2044 2006 Windermere/Idlewood/Knowles Road 977,988 2044 1997 Water Main Project Phase II 375,277 2044 2000 Brunswick Road Water Main Improvement Project 23,164 2044 2000 Forest Hills Water Main Project 25,442 2044 2008 Belmore Street Waterline Repair Project 102,014 2044 2011 Coit Avenue Sanitary Sewer Replacement 79,551 2044

All of the loans were obtained through the Ohio Public Works Commission (OPWC) and are interest free. A schedule of changes in long-term obligations of the City during 2017 follows:

Outstanding Outstanding Due in12/31/2016 Additions (Reductions) 12/31/2017 One Year

Governmental ActivitiesOPWC Loans: Euclid Avenue Rehabilitation $1,826,207 $0 ($66,408) $1,759,799 $66,408 Windemere/ Idlewood/ Knowles Road 649,957 0 (23,634) 626,323 23,634 Water Main Project Phase II 54,315 0 (1,976) 52,339 1,976 Brunswick Road Water Main Improvement Project 5,840 0 (212) 5,628 212 Forest Hills Water Main Project 6,997 0 (254) 6,743 254 Belmore Road Waterline Repair Project 77,147 0 (2,807) 74,340 2,806 Coit Avenue Sanitary Sewer Replacement 60,160 0 (2,188) 57,972 2,188Total OPWC Loans 2,680,623 0 (97,479) 2,583,144 97,478

Other Long-Term Obligations:Net Pension Liability

OPERS 2,960,378 858,913 0 3,819,291 0OP&F 14,012,578 0 (5,186,414) 8,826,164 0

Total Net Pension Liability 16,972,956 858,913 (5,186,414) 12,645,455 0Capital Leases 135,700 131,223 (88,025) 178,898 81,861Judgments Payable 11,431,460 20,005,000 (77,022) 31,359,438 30,000Police and Fire Pension Liability 1,144,341 0 0 1,144,341 45,319Compensated Absences 949,277 437,444 (442,609) 944,112 361,195

Total Other Long-Term Obligations 30,633,734 21,432,580 (5,794,070) 46,272,244 518,375

Total Governmental Activities $33,314,357 $21,432,580 ($5,891,549) $48,855,388 $615,853

OPWC loans will be paid from the debt service fund. Capital leases will be paid from the community development block grant special revenue fund and the permanent improvement capital projects fund. The judgments payable will be paid from the general fund. The police and fire pension liability will be paid from the police accrued liability and fire accrued liability funds. Compensated absences will be paid from the general, EMS and community development block grant funds. There is no repayment schedule for the net pension liability. However, employer pension contributions are made from the following funds: general, police accrued liability, fire accrued liability, EMS, COPS grant, community development and VOCA grant. For additional information related to the net pension liability see Note 14.

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During 2014, the City defaulted on their July 2014 OPWC payment due to cash constraints. The City renegotiated revised payment schedules with OPWC. The loans are now for a forty year period beginning in 2014. The City's overall legal debt margin was $12,328,821 at December 31, 2017. Principal and interest requirements to retire long-term obligations outstanding at December 31, 2017, are as follows:

OPWCLoans

Principal Interest Principal2018 $45,319 $48,277 $97,4782019 47,270 46,326 97,4782020 49,305 44,291 97,4782021 51,428 42,168 97,478

2022-2026 292,323 175,659 487,3902027-2031 360,915 107,067 487,3902032-2036 297,781 25,655 487,3902037-2041 0 0 487,3902042-2044 0 0 243,672

Total $1,144,341 $489,443 $2,583,144

Police and FireLiability


Note 14 – Defined Benefit Pension Plans Net Pension Liability The net pension liability reported on the statement of net position represents a liability to employees for pensions. Pensions are a component of exchange transactions-–between an employer and its employees—of salaries and benefits for employee services. Pensions are provided to an employee—on a deferred-payment basis—as part of the total compensation package offered by an employer for employee services each financial period. The obligation to sacrifice resources for pensions is a present obligation because it was created as a result of employment exchanges that already have occurred.

The net pension liability represents the City’s proportionate share of each pension plan’s collective actuarial present value of projected benefit payments attributable to past periods of service, net of each pension plan’s fiduciary net position. The net pension liability calculation is dependent on critical long-term variables, including estimated average life expectancies, earnings on investments, cost of living adjustments and others. While these estimates use the best information available, unknowable future events require adjusting this estimate annually.

Ohio Revised Code limits the City’s obligation for this liability to annually required payments. The City cannot control benefit terms or the manner in which pensions are financed; however, the City does receive the benefit of employees’ services in exchange for compensation including pension.

GASB 68 assumes the liability is solely the obligation of the employer, because (1) they benefit from employee services; and (2) State statute requires all funding to come from these employers. All contributions to date have come solely from these employers (which also includes costs paid in the form of withholdings from employees). State statute requires the pension plans to amortize unfunded liabilities within 30 years. If the amortization period exceeds 30 years, each pension plan’s board must propose corrective action to the

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State legislature. Any resulting legislative change to benefits or funding could significantly affect the net pension liability. Resulting adjustments to the net pension liability would be effective when the changes are legally enforceable.

The proportionate share of each plan’s unfunded benefits is presented as a long-term net pension liability on the accrual basis of accounting. Any liability for the contractually-required pension contribution outstanding at the end of the year is included in intergovernmental payable on both the accrual and modified accrual bases of accounting. Plan Description – Ohio Public Employees Retirement System (OPERS) Plan Description - City employees, other than full-time police and firefighters, participate in the Ohio Public Employees Retirement System (OPERS). OPERS administers three separate pension plans. The traditional pension plan is a cost-sharing, multiple-employer defined benefit pension plan. The member-directed plan is a defined contribution plan and the combined plan is a cost-sharing, multiple-employer defined benefit pension plan with defined contribution features. While members (e.g. City employees) may elect the member-directed plan and the combined plan, substantially all employee members are in OPERS’ traditional plan; therefore, the following disclosure focuses on the traditional pension plan. OPERS provides retirement, disability, survivor and death benefits, and annual cost of living adjustments to members of the traditional plan. Authority to establish and amend benefits is provided by Chapter 145 of the Ohio Revised Code. OPERS issues a stand-alone financial report that includes financial statements, required supplementary information and detailed information about OPERS’ fiduciary net position that may be obtained by visiting https://www.opers.org/financial/reports.shtml, by writing to the Ohio Public Employees Retirement System, 277 East Town Street, Columbus, Ohio 43215-4642, or by calling 800-222-7377. Senate Bill (SB) 343 was enacted into law with an effective date of January 7, 2013. In the legislation, members were categorized into three groups with varying provisions of the law applicable to each group. The following table provides age and service requirements for retirement and the retirement formula applied to final average salary (FAS) for the three member groups under the traditional plan as per the reduced benefits adopted by SB 343 (see OPERS CAFR referenced above for additional information, including requirements for reduced and unreduced benefits):

Group A Group B Group CEligible to retire prior to 20 years of service credit prior to Members not in other Groups

January 7, 2013 or five years January 7, 2013 or eligible to retire and members hired on or afterafter January 7, 2013 ten years after January 7, 2013 January 7, 2013

State and Local State and Local State and Local

Age and Service Requirements: Age and Service Requirements: Age and Service Requirements:Age 60 with 60 months of service credit Age 60 with 60 months of service credit Age 57 with 25 years of service creditor Age 55 with 25 years of service credit or Age 55 with 25 years of service credit or Age 62 with 5 years of service credit

Formula: Formula: Formula:2.2% of FAS multiplied by years of 2.2% of FAS multiplied by years of 2.2% of FAS multiplied by years of

service for the first 30 years and 2.5% service for the first 30 years and 2.5% service for the first 35 years and 2.5%for service years in excess of 30 for service years in excess of 30 for service years in excess of 35

Final average Salary (FAS) represents the average of the three highest years of earnings over a member’s career for Groups A and B. Group C is based on the average of the five highest years of earnings over a member’s career.

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Members who retire before meeting the age and years of service credit requirement for unreduced benefits receive a percentage reduction in the benefit amount. When a benefit recipient has received benefits for 12 months, an annual cost of living adjustment (COLA) is provided. This COLA is calculated on the base retirement benefit at the date of retirement and is not compounded. For those retiring prior to January 7, 2013, the COLA will continue to be a 3 percent simple annual COLA. For those retiring subsequent to January 7, 2013, beginning in calendar year 2019, the COLA will be based on the average percentage increase in the Consumer Price Index, capped at 3 percent. Funding Policy - The Ohio Revised Code (ORC) provides statutory authority for member and employer contributions as follows:

Stateand Local

2017 Statutory Maximum Contribution RatesEmployer 14.0 %Employee 10.0

2017 Actual Contribution RatesEmployer:

Pension 13.0 %Post-employment Health Care Benefits 1.0

Total Employer 14.0 %

Employee 10.0 %

Employer contribution rates are actuarially determined and are expressed as a percentage of covered payroll. The City’s contractually required contribution was $226,817 for 2017. Of this amount, $22,999 is reported as an intergovernmental payable. Plan Description – Ohio Police & Fire Pension Fund (OP&F) Plan Description - City full-time police and firefighters participate in Ohio Police and Fire Pension Fund (OP&F), a cost-sharing, multiple-employer defined benefit pension plan administered by OP&F. OP&F provides retirement and disability pension benefits, annual cost-of-living adjustments, and death benefits to plan members and beneficiaries. Benefit provisions are established by the Ohio State Legislature and are codified in Chapter 742 of the Ohio Revised Code. OP&F issues a publicly available financial report that includes financial information and required supplementary information and detailed information about OP&F fiduciary net position. The report that may be obtained by visiting the OP&F website at www.op-f.org or by writing to the Ohio Police and Fire Pension Fund, 140 East Town Street, Columbus, Ohio 43215-5164. Upon attaining a qualifying age with sufficient years of service, a member of OP&F may retire and receive a lifetime monthly pension. OP&F offers four types of service retirement: normal, service commuted, age/service commuted and actuarially reduced. Each type has different eligibility guidelines and is calculated using the member’s average annual salary. The following discussion of the pension formula relates to normal service retirement.

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For members hired after July 1, 2013, the minimum retirement age is 52 for normal service retirement with at least 25 years of service credit. For members hired on or before after July 1, 2013, the minimum retirement age is 48 for normal service retirement with at least 25 years of service credit. The annual pension benefit for normal service retirement is equal to a percentage of the allowable average annual salary. The percentage equals 2.5 percent for each of the first 20 years of service credit, 2.0 percent for each of the next five years of service credit and 1.5 percent for each year of service credit in excess of 25 years. The maximum pension of 72 percent of the allowable average annual salary is paid after 33 years of service credit. (See OP&F CAFR referenced above for additional information, including requirements for Deferred Retirement Option Plan provisions and reduced and unreduced benefits.) Under normal service retirement, retired members who are at least 55 years old and have been receiving OP&F benefits for at least one year may be eligible for a cost-of-living allowance adjustment. The age 55 provision for receiving a COLA does not apply to those who are receiving a permanent and total disability benefit and statutory survivors. Members retiring under normal service retirement, with less than 15 years of service credit on July 1, 2013, and members whose pension benefit became effective on or after July 1, 2013, will receive a COLA equal to a percentage of the member’s base pension benefit where the percentage is the lesser of three percent or the percentage increase in the consumer price index, if any, over the 12 month period that ends on the thirtieth day of September of the immediately preceding year, rounded to the nearest one-tenth of one percent. Funding Policy - The Ohio Revised Code (ORC) provides statutory authority for member and employer contributions as follows:

Police Firefighters2017 Statutory Maximum Contribution RatesEmployer 19.50 % 24.00 %Employee 12.25 % 12.25 %

2017 Actual Contribution RatesEmployer:

Pension 19.00 % 23.50 %Post-employment Health Care Benefits 0.50 0.50

Total Employer 19.50 % 24.00 %

Employee 12.25 % 12.25 % Employer contribution rates are expressed as a percentage of covered payroll. The City’s contractually required contribution to OP&F was $662,027 for 2017. Of this amount, $63,997 is reported as an intergovernmental payable. In addition to current contributions, the City pays installments on a specific liability the City incurred when the State of Ohio established the statewide pension system for police and fire fighters in 1967. As of December 31, 2017, the specific liability of the City was $1,144,341 payable in semi-annual payments through the year 2035.

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Pension Liabilities, Pension Expense, and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions The net pension liability for OPERS was measured as of December 31, 2016, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of that date. OP&F’s total pension liability was measured as of December 31, 2016, and was determined by rolling forward the total pension liability as of January 1, 2016, to December 31, 2016. The City's proportion of the net pension liability was based on the City's share of contributions to the pension plan relative to the contributions of all participating entities. Following is information related to the proportionate share and pension expense:

OPERS OP&FProportion of the Net Pension Liability: Current Measurement Date 0.016815% 0.1393480% Prior Measurement Date 0.017091% 0.2178210%

Change in Proportionate Share -0.000276% -0.0784730%

TotalProportionate Share of the Net Pension Liability $3,819,291 $8,826,164 $12,645,455

Pension Expense $702,673 $644,916 $1,347,589 At December 31, 2017, the City reported deferred outflows of resources and deferred inflows of resources related to pensions from the following sources:

OPERS OP&F TotalDeferred Outflows of ResourcesDifferences between expected and actual experience $5,176 $2,497 $7,673Changes of assumptions 605,645 0 605,645Net difference between projected and actual earnings on pension plan investments 568,648 858,305 1,426,953Changes in proportion and differences between City contributions and proportionate share of contributions 0 1,050,334 1,050,334City contributions subsequent to the measurement date 226,817 662,027 888,844

Total Deferred Outflows of Resources $1,406,286 $2,573,163 $3,979,449

Deferred Inflows of ResourcesDifferences between expected and actual experience $22,726 $20,322 $43,048Changes in proportion and differences between City contributions and proportionate share of contributions 137,578 3,545,536 3,683,114

Total Deferred Inflows of Resources $160,304 $3,565,858 $3,726,162

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$888,844 reported as deferred outflows of resources related to pension resulting from City contributions subsequent to the measurement date will be recognized as a reduction of the net pension liability in the year ending December 31, 2018. Other amounts reported as deferred outflows of resources and deferred inflows of resources related to pension will be recognized in pension expense as follows:

OPERS OP&F TotalYear Ending December 31:

2018 $368,344 ($118,814) $249,5302019 466,335 (118,814) 347,521

2020 201,153 (196,595) 4,5582021 (16,667) (503,022) (519,689)2022 0 (648,004) (648,004)

Thereafter 0 (69,473) (69,473)

Total $1,019,165 ($1,654,722) ($635,557)

Actuarial Assumptions - OPERS Actuarial valuations of an ongoing plan involve estimates of the values of reported amounts and assumptions about the probability of occurrence of events far into the future. Examples include assumptions about future employment, mortality, and cost trends. Actuarially determined amounts are subject to continual review or modification as actual results are compared with past expectations and new estimates are made about the future. Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employers and plan members) and include the types of benefits provided at the time of each valuation. The total pension liability was determined by an actuarial valuation as of December 31, 2016, using the following actuarial assumptions applied to all periods included in the measurement in accordance with the requirements of GASB 67. In 2016, the OPERS’ actuarial consultants conducted an experience study for the period 2011 through 2015, comparing assumptions to actual results. The experience study incorporates both a historical review and forward-looking projections to determine the appropriate set of assumptions to keep the plan on a path toward full funding. Information from this study led to changes in both demographic and economic assumptions, with the most notable being a reduction in the actuarially assumed rate of return from 8.0 percent down to 7.5 percent, for the defined benefit investments. Key methods and assumptions used in the latest actuarial valuation, reflecting experience study results, prepared as of December 31, 2016, compared with December 31, 2015, are presented below.

December 31, 2016 December 31, 2015

Wage Inflation 3.25 percent 3.75 percentFuture Salary Increases, 3.25 to 10.75 percent 4.25 to 10.05 percent including inflation including wage inflation including wage inflationCOLA or Ad Hoc COLA:

Pre-January 7, 2013 Retirees 3 percent, simple 3 percent, simplePost-January 7, 2013 Retirees 3 percent, simple through 2018, 3 percent, simple through 2018,

then 2.15 percent, simple then 2.8 percent, simpleInvestment Rate of Return 7.5 percent 8 percentActuarial Cost Method Individual Entry Age Individual Entry Age

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For 2016, mortality rates are based on the RP-2014 Healthy Annuitant mortality table. For males, Healthy Annuitant Mortality tables were used, adjusted for mortality improvement back to the observation period base of 2006 and then established the base year as 2015. For females, Healthy Annuitant Mortality tables were used, adjusted for mortality improvements back to the observation period base year of 2006 and then established the base year as 2010. The mortality rates used in evaluating disability allowances were based on the RP-2014 Disabled mortality tables, adjusted for mortality improvement back to the observation base year of 2006 and then established the base year as 2015 for males and 2010 for females. Mortality rates for a particular calendar year for both healthy and disabled retiree mortality tables are determined by applying the MP-2015 mortality improvement scale to the above described tables. For 2015, mortality rates were based on the RP-2000 Mortality Table projected 20 years using Projection Scale AA. For males, 105 percent of the combined healthy male mortality rates were used. For females, 100 percent of the combined healthy female mortality rates were used. The mortality rates used in evaluating disability allowances were based on the RP-2000 mortality table with no projections. For males 120 percent of the disabled female mortality rates were used set forward two years. For females, 100 percent of the disabled female mortality rates were used. The most recent experience study was completed for the five year period ended December 31, 2015. The prior experience study was completed for the five year period ended December 31, 2010. The long-term rate of return on defined benefit investment assets was determined using a building-block method in which best-estimate ranges of expected future real rates of return are developed for each major asset class. These ranges are combined to produce the long-term expected real rate of return by weighting the expected future real rates of return by the target asset allocation percentage, adjusted for inflation. During 2016, OPERS managed investments in four investment portfolios: the Defined Benefit portfolio, the 401(h) Health Care Trust portfolio, the 115 Health Care Trust portfolio and the Defined Contribution portfolio. The 401(h) Health Care Trust portfolio was closed as of June 30, 2016 and the net position transferred to the 115 Health Care Trust portfolio on July 1, 2016. The Defined Benefit portfolio contains the investment assets of the Traditional Pension Plan, the defined benefit component of the Combined Plan and the annuitized accounts of the Member-Directed Plan. The Defined Benefit portfolio historically included the assets of the Member-Directed retiree medical accounts funded through the VEBA Trust. However, the VEBA Trust was closed as of June 30, 2016 and the net position transferred to the 115 Health Care Trust portfolio on July 1, 2016. Within the Defined Benefit portfolio, contributions into the plans are all recorded at the same time, and benefit payments all occur on the first of the month. Accordingly, the money-weighted rate of return is considered to be the same for all plans within the portfolio. The annual money-weighted rate of return expressing investment performance, net of investment expenses and adjusted for the changing amounts actually invested, for the Defined Benefit portfolio is 8.3 percent for 2016. The allocation of investment assets with the Defined Benefit portfolio is approved by the Board of Trustees as outlined in the annual investment plan. Plan assets are managed on a total return basis with a long-term objective of achieving and maintaining a fully funded status for the benefits provided through the defined benefit pension plans. The table below displays the Board-approved asset allocation policy for 2016 and the long-term expected real rates of return:

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TargetAsset Class Allocation

Fixed Income 23.00 % 2.75 %Domestic Equities 20.70 6.34Real Estate 10.00 4.75Private Equity 10.00 8.97International Equities 18.30 7.95Other investments 18.00 4.92

Total 100.00 % 5.66 %

(Arithmetic)

Weighted AverageLong-Term ExpectedReal Rate of Return

Discount Rate The discount rate used to measure the total pension liability for 2016 was 7.5 percent. The discount rate for 2015 was 8 percent. The projection of cash flows used to determine the discount rate assumed that contributions from plan members and those of the contributing employers are made at the contractually required rates, as actuarially determined. Based on those assumptions, the pension plan’s fiduciary net position was projected to be available to make all projected future benefits payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability. Sensitivity of the City’s Proportionate Share of the Net Pension Liability to Changes in the Discount Rate The following table presents the City’s proportionate share of the net pension liability calculated using the current period discount rate assumption of 7.5 percent, as well as what the City’s proportionate share of the net pension liability would be if it were calculated using a discount rate that is one-percentage-point lower (6.5 percent) or one-percentage-point higher (8.5 percent) than the current rate:

Current

1% Decrease Discount Rate 1% Increase(6.50%) (7.50%) (8.50%)

City's proportionate share of the net pension liability $5,833,460 $3,819,291 $2,139,204

Actuarial Assumptions – OP&F OP&F’s total pension liability as of December 31, 2016, is based on the results of an actuarial valuation date of January 1, 2016, and rolled-forward using generally accepted actuarial procedures. The total pension liability is determined by OP&F’s actuaries in accordance with GASB Statement No. 67, as part of their annual valuation. Actuarial valuations of an ongoing plan involve estimates of reported amounts and assumptions about probability of occurrence of events far into the future. Examples include assumptions about future employment mortality, salary increases, disabilities, retirements and employment terminations. Actuarially determined amounts are subject to continual review and potential modifications, as actual results are compared with past expectations and new estimates are made about the future. Key methods and assumptions used in calculating the total pension liability in the latest actuarial valuation, prepared as of January 1, 2016, are presented below:

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Valuation Date January 1, 2016, with actuarial liabilities rolled forwardto December 31, 2016

Actuarial Cost Method Entry Age NormalInvestment Rate of Return 8.25 percent Projected Salary Increases 4.25 percent to 11 percentPayroll Increases 3.75 percentInflation Assumptions 3.25 percent

plus productivity increase rate of 0.5 percentCost of Living Adjustments 3.00 percent simple; 2.6 percent simple for increases

based on the lesser of the increase in CPI and 3 percent Rates of death are based on the RP2000 Combined Table, age-adjusted as follows. For active members, set back six years. For disability retirements, set forward five years for police and three years for firefighters. For service retirements, set back zero years for police and two years for firefighters. For beneficiaries, set back zero years. The rates are applied on a fully generational basis, with a base year of 2009, using mortality improvement Scale AA. The most recent experience study was completed January 1, 2012. The long-term expected rate of return on pension plan investments was determined using a building-block approach and assumes a time horizon, as defined in the Statement of Investment Policy. A forecasted rate of inflation serves as the baseline for the return expectation. Various real return premiums over the baseline inflation rate have been established for each asset class. The long-term expected nominal rate of return has been determined by calculating a weighted averaged of the expected real return premiums for each asset class, adding the projected inflation rate and adding the expected return from rebalancing uncorrelated asset classes. Best estimates of the long-term expected geometric real rates of return for each major asset class included in OP&F’s target asset allocation as of December 31, 2016, are summarized below:

TargetAsset Class Allocation

Cash and Cash Equivalents 0.00 % 0.00 %Domestic Equity 16.00 5.21Non-US Equity 16.00 5.40Core Fixed Income * 20.00 2.37Global Inflation Protected Securities* 20.00 2.33High Yield 15.00 4.48Real Estate 12.00 5.65Private Markets 8.00 7.99Timber 5.00 6.87Master Limited Partnerships 8.00 7.36

Total 120.00 %

Note: Assumptions are geometric.* levered 2x

Long-Term ExpectedReal Rate of Return

OP&F’s Board of Trustees has incorporated the “risk parity” concept into OP&F’s asset liability valuation with the goal of reducing equity risk exposure, which reduces overall Total Portfolio risk without sacrificing return, and creating a more risk-balanced portfolio based on their relationship between asset classes and economic environments. From the notional portfolio perspective above, the Total Portfolio may be levered up to 1.2 times due to the application of leverage in certain fixed income asset classes.

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Discount Rate The total pension liability was calculated using the discount rate of 8.25 percent. The projection of cash flows used to determine the discount rate assumed the contributions from employers and from the members would be computed based on contribution requirements as stipulated by State statute. Projected inflows from investment earning were calculated using the longer-term assumed investment rate of return 8.25 percent. Based on those assumptions, the plan’s fiduciary net position was projected to be available to make all future benefit payments of current plan members. Therefore, a long-term expected rate of return on pension plan investments was applied to all periods of projected benefits to determine the total pension liability.

Sensitivity of the City's Proportionate Share of the Net Pension Liability to Changes in the Discount Rate Net pension liability is sensitive to changes in the discount rate, and to illustrate the potential impact the following table presents the net pension liability calculated using the discount rate of 8.25 percent, as well as what the net pension liability would be if it were calculated using a discount rate that is one percentage point lower (7.25 percent), or one percentage point higher (9.25 percent) than the current rate.

Current1% Decrease Discount Rate 1% Increase

(7.25%) (8.25%) (9.25%)

City's proportionate share of the net pension liability $11,755,403 $8,826,164 $6,343,592

Changes between Measurement Date and Report Date In October 2017, the OP&F Board adopted certain assumption changes which will impact their annual actuarial valuation prepared as of January 1, 2017. The most significant change is a reduction in the discount rate from 8.25 percent to 8 percent. Although the exact amount of these changes is not known, it has the potential to impact to the City’s net pension liability. Note 15 – Postemployment Benefits Ohio Public Employees Retirement System Plan Description - The Ohio Public Employees Retirement System (OPERS) administers three separate pension plans: the traditional pension plan, a cost-sharing, multiple-employer defined benefit pension plan; the member-directed plan, a defined contribution plan; and the combined plan, a cost-sharing, multiple-employer defined benefit pension plan that has elements of both a defined benefit and defined contribution plan. OPERS maintains a cost-sharing, multiple-employer defined benefit post-employment health care trust, which funds multiple health care plans including medical coverage, prescription drug coverage and deposits to a Health Reimbursement Arrangement to qualifying benefit recipients of both the traditional pension and the combined plans. This trust is also used to fund health care for member-directed plan participants, in the form of a Retiree Medical Account (RMA). At retirement or refund, member directed plan participants may be eligible for reimbursement of qualified medical expenses from their vested RMA balance. In order to qualify for postemployment health care coverage, age and service retirees under the traditional pension and combined plans must have twenty or more years of qualifying Ohio service credit. Health care coverage for disability benefit recipients and qualified survivor benefit recipients is available. The health care coverage provided by OPERS meets the definition of an Other Post Employment Benefit (OPEB) as described in GASB Statement 45. See OPERS’ CAFR referenced below for additional information.

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The Ohio Revised Code permits, but does not require OPERS to provide health care to its eligible benefit recipients. Authority to establish and amend health care coverage is provided to the Board in Chapter 145 of the Ohio Revised Code. Disclosures for the health care plan are presented separately in the OPERS financial report. Interested parties may obtain a copy by visiting https://www.opers.org/financial/reports.shtml, by writing to OPERS, 277 East Town Street, Columbus, Ohio 43215-4642, or by calling (614) 222-5601 or 800-222-7377. Funding Policy - The Ohio Revised Code provides the statutory authority requiring public employers to fund postemployment health care through their contributions to OPERS. A portion of each employer’s contribution to OPERS is set aside to fund OPERS health care plans. Employer contribution rates are expressed as a percentage of the earnable salary of active members. In 2017, state and local employers contributed at a rate of 14.0 percent of earnable salary and public safety and law enforcement employers contributed at 18.1 percent. These are the maximum employer contribution rates permitted by the Ohio Revised Code. Active member contributions do not fund health care. Each year, the OPERS Board determines the portion of the employer contribution rate that will be set aside to fund health care plans. The portion of employer contributions allocated to health care for members in the Traditional Pension Plan and Combined Plan was 1.0 percent during calendar year 2017. As recommended by OPERS’ actuary, the portion of employer contributions allocated to health care beginning January 1, 2018 decreased to 0 percent for both plans. The OPERS Board is also authorized to establish rules for the retiree or their surviving beneficiaries to pay a portion of the health care provided. Payment amounts vary depending on the number of covered dependents and the coverage selected. The employer contribution as a percentage of covered payroll deposited into the RMA for participants in the Member-Directed Plan for 2017 was 4.0 percent. Substantially all of the City’s contribution allocated to fund postemployment health care benefits relates to the cost-sharing, multiple employer trusts. The corresponding contribution for the years ended December 31, 2017, 2016, and 2015 was $17,447, $43,460, and $42,564, respectively. For 2017, 91 percent has been contributed with the balance being reported as an intergovernmental payable. The full amount has been contributed for 2016 and 2015. Ohio Police and Fire Pension Fund Plan Description - The City contributes to the Ohio Police and Fire Pension Fund (OP&F) sponsored healthcare program, a cost-sharing, multiple-employer defined post-employment healthcare plan administered by OP&F. OP&F provides health care benefits including coverage for medical, prescription drug, dental, vision, Medicare Part B Premium, and long-term care to retirees, qualifying benefit recipients and their eligible dependents. OP&F provides access to postretirement health care coverage for any person who receives or is eligible to receive a monthly service, disability, or statutory survivor benefit, or is a spouse or eligible dependent child of such person. The health care coverage provided by OP&F meets the definition of an Other Post Employment Benefit (OPEB) as described in Government Accounting Standards Board (GASB) Statement No. 45. The Ohio Revised Code allows, but does not mandate, OP&F to provide OPEB benefits. Authority for the OP&F Board of Trustees to provide health care coverage to eligible participants and to establish and amend benefits is codified in Chapter 742 of the Ohio Revised Code.

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OP&F issues a publicly available financial report that includes financial information and required supplementary information for the plan. The report may be obtained by visiting the OP&F website at www.op-f.org or by writing to the Ohio Police and Fire Pension Fund, 140 East Town Street, Columbus, Ohio 43215-5164. Funding Policy - The Ohio Revised Code provides for contribution requirements of the participating employers and of plan members to the OP&F defined benefit pension plan. Participating employers are required to contribute to the pension plan at rates expressed as percentages of the payroll of active pension plan members, currently 19.5 percent and 24 percent of covered payroll for police and fire employer units. Active members do not make contributions to the OPEB Plan. OP&F maintains funds for health care in two separate accounts. One for health care benefits under an IRS Code Section 115 trust and one for Medicare Part B reimbursements administered as an Internal Revenue Code 401(h) account, both of which are within the defined benefit pension plan, under the authority granted by the Ohio Revised Code to the OP&F Board of Trustees. The Board of Trustees is authorized to allocate a portion of the total employer contributions made into the pension plan to the Section 115 trust and the Section 401(h) account as the employer contribution for retiree health care benefits. For 2017, the portion of employer contributions allocated to health care was 0.5 percent of covered payroll. The amount of employer contributions allocated to the health care plan each year is subject to the Trustees’ primary responsibility to ensure that pension benefits are adequately funded and is limited by the provisions of Sections 115 and 401(h). The OP&F Board of Trustees is also authorized to establish requirements for contributions to the health care plan by retirees and their eligible dependents or their surviving beneficiaries. Payment amounts vary depending on the number of covered dependents and the coverage selected. The City’s contribution to OP&F for the years ended December 31, 2017, 2016, and 2015 were $677,548, $858,387, and $815,128, respectively, of which $15,521, $19,820, and $18,897, respectively, was allocated to the healthcare plan. For 2017, 90 percent has been contributed for both police and firefighters with the balance being reported as an intergovernmental payable. The full amount has been contributed for 2016 and 2015. Note 16 – Contingencies Grants The City receives financial assistance from federal and state agencies in the form of grants. The disbursement of funds received under these programs generally requires compliance with terms and conditions specified in the grant agreements and is subject to audit by the grantor agencies. Any disallowed claims resulting from such audits could become a liability of the general fund or other applicable funds. However, in the opinion of management, any such disallowed claims will not have a material adverse effect on the overall financial position of the City at December 31, 2017. Litigation Legal proceedings covering a wide range of matters are pending or threatened against the City. All such cases are, and will continue to be, vigorously defended. It is possible that there could be adverse developments in pending cases against the City and that the results of operations, cash flows or financial position could be materially affected in a particular year by an unfavorable outcome or settlement of certain pending litigation. Nevertheless, although litigation is subject to uncertainty, the City believes, that they

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have valid defenses to the litigation pending, as well as valid bases for appeal of adverse verdicts. However, the City may enter into settlement discussions in particular cases if they believe it is in their best interests to do so. The following lists the cases for which the City has recorded a liability as of December 31, 2017 as a result of judgments against the City.

Fitzgerald v. City of East Cleveland, et al. Makeena Fitzgerald brought a lawsuit against the City alleging false arrest and imprisonment. The jury found for the plaintiff and against the City of East Cleveland in the amount of $100,000 as to malicious prosecution; the jury found for the plaintiff and against the City in the amount of $100,000 as to intentional infliction of emotional distress. The City arrived at a settlement with the plaintiff in 2015 for $170,000 to be paid over 6 years with $25,000 to be paid annually. As of December 31, 2017, $120,000 has been accrued as a long-term judgments payable. During 2018, the City and Fitzgerald agreed to a reduced settlement of $100,000 to satisfy the remaining judgment.

Savage v. City of East Cleveland During 2009, Nestor filed bankruptcy and claimed the City of East Cleveland owed Nestor $638,093 based upon a contract stemming from 2006. The Rhode Island Trustee for the bankruptcy case sued and got a judgment against the City for that amount in 2014. As of December 31, 2017, the City has accrued $638,093 as a judgments payable on the financial statements. The judgment is considered due and payable and is reflected as a fund liability on the financial statements.

East Cleveland Firefighters IAFF v. City of East Cleveland During 2016, judgment was awarded to the East Cleveland Firefighters, IAFF Local 500, AFl-CIO, and Thomas Buth for the City’s failure to comply with the terms of a temporary restraining order and preliminary injunction. As of December 31, 2017, the City has accrued $103,000 as a judgments payable on the financial statements. The judgment is considered due and payable and is reflected as a fund liability on the financial statements.

Leo Jones, Jr. v. City of East Cleveland During 2017, the City agreed to settlement of a lawsuit for after it failed to respond to requests for admissions and for negligence related to a City maintained utility pole falling on a vehicle in which the plaintiff was the passenger. Judgment was awarded in the amount of $10,000 with half due to the plaintiff on December 15, 2017 and the remainder due on or before March 15, 2018. As of December 31, 2017, the City has accrued $5,000 as a long-term judgments payable on the financial statements. During 2018, the City completed the payment of the outstanding judgment.

Lillian Carrington and April White-Lee v. City of East Cleveland During 2017, the City agreed to settlement of a lawsuit related to sexual impropriety by a former East Cleveland police officer. As of December 31, 2017, the City has accrued $25,000 as a judgements payable on the financial statements. The judgment is considered due and payable and is reflected as a fund liability on the financial statements.

Ceasor v. City of East Cleveland, et al. During 2015, Christopher Kimble entered an intersection and was struck by an East Cleveland police car on an emergency run. As the administrator of the estate of the decedent Mr. Kimble, Ms. Ceasor filed a five-count Complaint in 2016. During 2017, the City filed a motion for summary judgment and a motion to dismiss arguing that none of the exceptions to sovereign immunity in R.C. 2744.02(B) apply to this case and that Ceasor failed to present evidence sufficient to create genuine issue of material fact. The trial court denied the City’s motions and the City appealed to the Eighth District Court of Appeals. The Eighth District Court of Appeals affirmed the lower court’s denial, and remanded the matter to a jury trial. In February 2019, the City arrived at a settlement with the plaintiff for $150,000. As of December 31, 2017, the City has accrued $150,000 as a long-term judgements payable on the financial statements. During 2019, the City completed the payment of the outstanding judgment.

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Hunt v. City of East Cleveland, et al. During 2009, Charles Hunt entered an intersection and was struck by an East Cleveland police car on an emergency call. Mr. Hunt and his passenger sustained serious injuries and the jury awarded a combined verdict of $8,617,180. As of December 31, 2017, the City has accrued $11,084,438 as a long-term judgements payable on the financial statements. The judgment payable includes the verdict of $8,617,180 and prejudgment interest of $2,467,258.

Black v. City of East Cleveland, et al. A case was filed in which Arnold Black alleged an East Cleveland police officer of punching him during a drug/traffic stop then unlawfully detaining him for three days at the City of East Cleveland jail in 2011. While the case was on appeal for some interlocutory issues, the trial court proceeded to a jury trial without notifying the City’s Legal Counsel. The Jury reached a verdict of $22 Million. The City appealed that decision on procedural grounds, and the Eighth District Court of Appeals overturned the award and sent it back to the Court of Common Pleas for a new trial. During 2019, the Jury reached a verdict of $50 million. Compensatory and punitive damages of $30 million were against the officers and $20 million in compensatory damages was against the City. Based upon the collective bargaining agreement with the Fraternal Order of Police and Ohio Revised Code 2744.05(A), the City maintains it has no liability for the compensatory and punitive damages that were against the officers. In regards to the $20 million judgment against the City, the City contends Mr. Black had no actual losses and the compensatory damages are subject to the $250,000 limitation imposed by Ohio Revised Code Section 2744.05 and would be paid over ten years. The City plans on appealing this verdict with the Eighth District Court of Appeals. As of December 31, 2017, the City has accrued $20,000,000 as a long-term judgements payable on the financial statements.

The City records provisions in the financial statements for pending litigation when it is determined that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, after assessing the information available to it (i) management has not concluded that it is probable that a loss has been incurred; and (ii) management is unable to estimate the possible loss or range of loss; accordingly, no estimated loss has been accrued in the financial statements for unfavorable outcomes in the following cases.

Wheatt, et al. v. City of East Cleveland, et al. This case involved three juveniles who were convicted as adults with aggravated murder in 1995. In 2016, after serving almost twenty years, a City Judge dismissed their case without prejudice. Upon their release from prison, they filed a wrongful imprisonment case for $60 million with the federal court alleging that their constitutional rights were violated by the participating law enforcement officers as well as the County Prosecutor’s Office. Due to a recent ruling by the U.S. Supreme Court, the defense of “Qualified Immunity,” is applicable to protect the City from liability. In November of 2018, a jury found their civil rights were violated and awarded the defendants $5 million each. The City plans on appealing the decision to the Sixth Circuit Court of Appeals and, if necessary, the U.S. Supreme Court. The City also plans on appealing the anticipated judgment liens through the State Court System.

Derrico v. Moore, et al. The case alleges that three City police officers mistreated drug dealers upon their arrests during the period from 2007 until 2015. The three City officers have been arrested and subsequently fired from City employment. The City filed a Motion to Dismiss for failure to state a claim. The City anticipates any compensation will be paid from the Court of Claims thereby relieving the City of responsibility.

Note 17 – Interfund Transfers and Balances Interfund Transfers

In 2017, the general fund transferred $97,479 to the debt service fund to meet principal and interest requirements as they came due.

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Interfund Balances Interfund balances at December 31, 2017 consisted of the following:

Other InternalGovernmental Service

Interfund Payable Funds Fund Total

General Fund $348,981 $90,682 $439,663Community Development 0 85 85Other Governmental Funds 116,212 2,929 119,141

Total Governmental Funds $465,193 $93,696 $558,889

Interfund Receivable

The interfund receivables and payables were the result of charges for services, deficit cash balances and due to the timing of the receipt of grant monies at year end. Note 18 – Risk Management Property and Liability The City is exposed to various risks of loss related to torts; theft of, damage to and destruction of assets; errors and omissions; injuries to employees natural disasters. During 2017, the City contracted with Love Insurance for blanket building and business personal property general liability insurance with $17,510,342 coverage. Claims have not exceeded coverage in any of the last three years. The reduction in general liability insurance is due to a decrease in the number of structures covered. The City has elected to provide employee hospital/medical, prescription and dental benefits through a self-insured program. The City established an internal service fund to account for and finance the cost of this program. The claims liability of $93,696 as estimated by the third party administrator and reported in the hospitalization internal service fund at December 31, 2017, is based on the requirements of GASB Statement No. 30 which requires that a liability for unpaid claims costs, including estimates of costs relating to incurred but not reported claims, be reported. The estimate was not affected by incremental claims adjustment expenses and does not include other allocated or unallocated claim adjustment expenses. Changes in the fund claims liability amount in 2016 and 2017 were as follows:

Balance at Current Year Claim Balance atBeginning of Year Claims Payments End of Year

2016 $212,198 $764,611 $937,198 $39,6112017 39,611 426,490 372,405 93,696

Workers’ compensation coverage is provided by the State. The City pays the State Workers’ Compensation System a premium based on a rate per $100 of salaries. This rate is calculated based on accident history and administrative costs.

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Note 19 – Encumbrances Encumbrances are commitments related to unperformed contracts for goods or services. Encumbrance accounting is utilized to the extent necessary to assure effective budgetary control and accountability and to facilitate effective cash planning and control. At year-end the amount of encumbrances expected to be honored upon performance by the vendor in the next year were as follows:

General $197,869

Community Development 267,940Other Governmental Funds 54,850

Total Governmental Funds $520,659

Note 20 – Fiscal Emergency The Auditor of State’s office placed the City in fiscal emergency on October 9, 2012 in accordance with Section 118.03, Ohio Revised Code. The declaration resulted in the establishment of a Financial Planning and Supervision Commission. The Commission is comprised of the Mayor of the City, Council President, three financial consultants from various corporations and/or organizations within the City and two representatives from the State of Ohio. In accordance with Section 118.06 of the Ohio Revised Code, the City is required to submit to the Commission a financial recovery plan for the City which outlines the measures to be taken to eliminate the fiscal emergency conditions. A city is placed into fiscal emergency when any one of six conditions is present. For the City of East Cleveland, one of the six conditions was present at the date of the Auditor of State’s determination. The condition present in the City was deficit fund balances. Under Section 118.03(A)(5) of the Revised Code, the aggregate sum of all deficit funds at the end of the preceding fiscal year, less any transferable balance in the general fund and in any special revenue fund that exceed one-sixth of the general fund budget and the receipts of the deficit funds is a fiscal emergency condition. As of November 30, 2011, the City had deficit fund balances in the amount of ($5,872,222) and the deficits exceeded two percent of the estimated revenue of those funds by $5,451,535. The City currently has a recovery plan in place. This plan will attempt to help the City make steps to regain financial stability. The plan includes a revenue generating action as well as several expenditure reduction actions. Note 21 – Related Party Transaction The City leases 1,500 square feet of a building owned by the King Management Group to house the Domestic Violence department. The City also leases with King Management Group for storage space for the Municipal Court and the finance department. Brandon King, the Mayor, is a managing partner with the King Management Group. During 2017, the City paid rental costs of $11,181, $4,800 and $6,000 respectively.

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- R1 -

2017 2016 2015 2014

City's Proportion of the Net Pension Liability 0.016815% 0.017091% 0.019740% 0.019740%

City's Proportionate Share of the Net Pension Liability $3,819,291 $2,960,378 $2,380,865 $2,327,089

City's Covered Payroll $2,172,992 $2,128,192 $2,420,125 $2,777,508

City's Proportionate Share of the Net Pension Liability as a Percentage of its Covered Payroll 175.76% 139.10% 98.38% 83.78%

Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 77.25% 81.08% 86.45% 86.36%

(1) Although this schedule is intended to reflect information for ten years, information prior to 2014is not available. An additional column will be added each year.

*Amounts presented for each year were determined as of the City's measurement datewhich is the prior year end.

See accompanying notes to the required supplementary information


Schedule of the City's Proportionate Share of theNet Pension Liability

Ohio Public Employees Retirement System - Traditional PlanLast Four Years (1)*


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2017 2016 2015 2014

City's Proportion of the Net Pension Liability 0.1393480% 0.2178210% 0.1865190% 0.1865190%

City's Proportionate Share of the Net Pension Liability $8,826,164 $14,012,578 $9,662,461 $9,084,060

City's Covered Payroll $2,930,283 $4,318,736 $3,668,106 $4,426,159

City's Proportionate Share of the Net Pension Liability as a Percentage of its Covered Payroll 301.21% 324.46% 263.42% 205.24%

Plan Fiduciary Net Position as a Percentage of the Total Pension Liability 66.77% 71.71% 72.20% 73.00%


*Amounts presented for each year were determined as of the City's measurement datewhich is the prior year end.



Schedule of the City's Proportionate Share of theNet Pension Liability

Ohio Police and Fire Pension FundLast Four Years (1)*


- R3 -

2017 2016 2015 2014 2013

Contractually Required Contribution $226,817 $260,759 $255,383 $290,415 $361,076

Contributions in Relation to the Contractually Required Contribution (226,817) (260,759) (255,383) (290,415) (361,076)

Contribution Deficiency (Excess) $0 $0 $0 $0 $0

City Covered Payroll $1,744,746 $2,172,992 $2,128,192 $2,420,125 $2,777,508

Contributions as a Percentage of Covered Payroll 13.00% 12.00% 12.00% 12.00% 13.00%



Last Five Years (1)

City of East Cleveland, OhioRequired Supplementary InformationSchedule of the City's Contributions

Ohio Public Employees Retirement System - Traditional Plan

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This Page Intentionally Left Blank.

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Schedule of the City's ContributionsOhio Police and Fire Pension Fund

Last Ten Years

2017 2016 2015 2014

Contractually Required Contribution $662,027 $634,235 $934,392 $780,570

Contributions in Relation to the Contractually Required Contribution (662,027) (634,235) (934,392) (780,570)

Contribution Deficiency (Excess) $0 $0 $0 $0

City Covered Payroll $3,104,172 $2,930,283 $4,318,736 $3,668,106

Contributions as a Percentage of Covered Payroll 21.33% 21.64% 21.64% 21.28%



- R6 -

2013 2012 2011 2010 2009 2008

$804,114 $790,503 $721,133 $753,465 $672,309 $715,420

(804,114) (790,503) (721,133) (753,465) (672,309) (715,420)

$0 $0 $0 $0 $0 $0

$4,426,159 $5,232,484 $4,749,649 $4,918,442 $4,455,694 $4,721,175

18.17% 15.11% 15.18% 15.32% 15.09% 15.15%

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City of East Cleveland, Ohio Notes to Required Supplementary Information


Changes in Assumptions - OPERS

Amounts reported for 2017 incorporate changes in assumptions used by OPERS in calculating the total pension liability in the latest actuarial valuation. These new assumptions compared with those used in 2016 and prior are presented below:

December 31, 2016December 31, 2017 and Prior

Wage Inflation 3.25 percent 3.75 percentFuture Salary Increases, 3.25 to 10.75 percent 4.25 to 10.05 percent including inflation including wage inflation including wage inflationCOLA or Ad Hoc COLA:

Pre-January 7, 2013 Retirees 3 percent, simple 3 percent, simplePost-January 7, 2013 Retirees 3 percent, simple through 2018, 3 percent, simple through 2018,

then 2.15 percent, simple then 2.8 percent, simpleInvestment Rate of Return 7.5 percent 8 percentActuarial Cost Method Individual Entry Age Individual Entry Age

Amounts reported for 2017 use mortality rates based on the RP-2014 Healthy Annuitant mortality table. For males, Healthy Annuitant Mortality tables were used, adjusted for mortality improvement back to the observation period base of 2006 and then established the base year as 2015. For females, Healthy Annuitant Mortality tables were used, adjusted for mortality improvements back to the observation period base year of 2006 and then established the base year as 2010. The mortality rates used in evaluating disability allowances were based on the RP-2014 Disabled mortality tables, adjusted for mortality improvement back to the observation base year of 2006 and then established the base year as 2015 for males and 2010 for females. Mortality rates for a particular calendar year for both healthy and disabled retiree mortality tables are determined by applying the MP-2015 mortality improvement scale to the above described tables.

Amounts reported for 2016 and prior use mortality rates based on the RP-2000 Mortality Table projected 20 years using Projection Scale AA. For males, 105 percent of the combined healthy male mortality rates were used. For females, 100 percent of the combined healthy female mortality rates were used. The mortality rates used in evaluating disability allowances were based on the RP-2000 mortality table with no projections. For males 120 percent of the disabled female mortality rates were used set forward two years. For females, 100 percent of the disabled female mortality rates were used.

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Single Audit Reports




Table of Contents Page

Independent Auditor’s Report on Internal Control over FinancialReporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards .................................................................................................................................. 1

Independent Auditor’s Report on Compliance for Each Major Program; Internal Control over Compliance; and Report on the Schedule of Expenditures of Federal Awards Required by the Uniform Guidance .................................................... 3

Schedule of Expenditures of Federal Awards ......................................................................................... 6

Notes to the Schedule of Expenditures of Federal Awards ..................................................................... 7

Schedule of Findings and Questioned Costs ........................................................................................... 8

Schedule of Prior Audit Findings ............................................................................................................ 16

Corrective Action Plan ............................................................................................................................ 19


Independent Auditor’s Report on Internal Control over Financial Reporting and onCompliance and Other Matters Based on an Audit of Financial Statements

Performed in Accordance with Government Auditing Standards

Honorable Mayor andMembers of the City Council


We have audited, in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City of East Cleveland, Ohio (the “City”), as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements, and have issued our report thereon dated October 11, 2019, wherein we qualified our opinion on the governmental activities because certain accounting records supporting the valuation of compensated absences were not presented for audit. Furthermore, we noted as disclosed in Note 20 to the financial statements, on October 9, 2012, the Auditor of State declared the City to be in a state of fiscal emergency.

Internal Control over Financial Reporting

In planning and performing our audit of the financial statements, we considered the City’s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the City’s internal control. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned funct ions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the City’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We did identify certain deficiencies in internal control, described in the accompanying schedule of findings and questioned costs that we consider to be material weaknesses: items 2017-001 through 2017-005.


2

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the City’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed an instance of noncompliance or other matters that is required to be reported under Government Auditing Standards and which is described in the accompanying schedule of findings and questioned costs as item 2017-006.

City’s Response to Findings

The City’s responses to the findings identified in our audit are described in the accompanying schedule of findings and questioned costs and corrective action plan. The City’s responses were not subjected to the auditing procedures applied in the audit of the financial statements and, accordingly, we express no opinion on them.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the City’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the City’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.


3


Independent Auditor’s Report on Compliance for Each Major Program;Internal Control Over Compliance; and Report on the Schedule of

Expenditures of Federal Awards Required by the Uniform Guidance

Honorable Mayor and Members of City Council City of East Cleveland, Ohio

Report on Compliance for Each Major Federal Program

We have audited the City of East Cleveland, Ohio’s (the “City”) compliance with the types of compliance requirements described in the OMB Compliance Supplement that could have a direct and material effect on the City’s major federal program for the year ended December 31, 2017. The City’s major federal program isidentified in the summary of auditor’s results section of the accompanying schedule of findings and questioned costs.

Management’s Responsibility

Management is responsible for compliance with federal statutes, regulations, and the terms and conditions of its federal awards applicable to its federal programs.

Auditor’s Responsibility

Our responsibility is to express an opinion on compliance for the City’s major federal program based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and the audit requirements of Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Those standards and the Uniform Guidance require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance r equirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the City’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion on compliance for the major federal program. However, our audit does not provide a legal determination of the City’s compliance.

Opinion on the Major Federal Program

In our opinion, the City complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on its major federal program for the year ended December 31, 2017.


4

Other Matters

The results of our auditing procedures disclosed an instance of noncompliance, which is required to be reported in accordance with the Uniform Guidance and which is described in the accompanying schedule of findings and questioned costs as item 2017-008. Our opinion on the major federal program is not modified with respect to this matter.

The City’s response to the noncompliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs and corrective action plan. The City’s response was not subjectedto the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on theresponse.

Report on Internal Control over Compliance

Management of the City is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered the City’s internal control over compliance with the types of requirements that could have a direct and material effect on the major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for the major federal program and to test and report on internal control over compliance in accordance with the Uniform Guidance, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the City’s internal control over compliance.

A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies and therefore, material weaknesses or significant deficiencies may exist that were not identified. We identified a deficiency in internal control over compliance, as described in the accompanying schedule of findings and questioned costs as item 2017-007, that we consider to be a material weakness.

The City’s response to the internal control over compliance finding identified in our audit is described in the accompanying schedule of findings and questioned costs and corrective action plan. The City’s response was not subjected to the auditing procedures applied in the audit of compliance and, accordingly, we express no opinion on the response.


5

The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of the Uniform Guidance. Accordingly, this report is not suitable for any other purpose.

Report on Schedule of Expenditures of Federal Awards Required by the Uniform Guidance

We have audited the financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the City, as of and for the year ended December 31, 2017, and the related notes to the financial statements, which collectively comprise the City’s basic financial statements wherein we noted the City was placed in fiscal emergency effective October 9, 2012. We issued our report thereon dated October 11, 2019, which contained a qualified opinion over the governmental activities and unmodified opinions on the other opinion units. Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the basic financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by the Uniform Guidance and is not a required part of the basic financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the basic financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated in all material respects in relation to the basic financial statements as a whole.



Schedule of Expenditures of Federal Awards


See Notes to the Schedule of Expenditures of Federal Awards

6

FederalFederal Grantor/Pass-Through CFDA Federal Grantor/Program or Cluster Title Number Expenditures

U.S. Department of Housing and Urban Development:

CDBG - Entitlement Grants Cluster:Community Development Block Grants / Entitlement Grants 14.218 $ 1,323,484

Passed Through Office of Community Planning and Development:Home Investment Partnerships Program 14.239 249,700

Total U.S. Department of Housing and Urban Development 1,573,184

U.S. Department of Justice:

Passed Through Office of Community Oriented Policing Services:Public Safety Partnership and Community Policing Grants (CHRP) 16.710 144,537Public Safety Partnership and Community Policing Grants (SRO) 16.710 88,790

233,327Passed Through Office of Justice Programs:

Edward Byrne Memorial Justice Assistance Grant Program 16.738 10,190

Passed Through Office of Victims of Crime:Crime Victim Assistance (VOCA) 16.575 124,039

Total U.S. Department of Justice 367,556

U.S. Department of Homeland Security:

Passed Through Office of Federal Emergency Management Agency:Assistance to Firefighters Grant - Fire Prevention

and Safety Grants 97.044 521,840

Total U.S. Department of Homeland Security 521,840

Total Expenditures of Federal Awards $ 2,462,580


Notes to the Schedule of Expenditures of Federal Awards


7

Note 1: Summary of Significant Accounting Policies

The accompanying schedule of expenditures of federal awards includes the federal grant activity of the City of East Cleveland, Ohio (the “City”), and is presented on the cash basis of accounting. The information in this schedule is presented in accordance with the requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards(Uniform Guidance). Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in the preparation of, the basic financial statements.

Note 2: Indirect Cost Rate

The City has not elected to use the 10 percent de minimis indirect cost rate to recover indirect costs as allowed under the Uniform Guidance.


Schedule of Findings and Questioned Costs


8

1. Summary of Auditor’s Results

(d)(1)(i) Type of Financial Statement OpinionsGovernmental Activities –Qualified. Unmodified for

other opinion units.

(d)(1)(ii)Were there any material control weaknesses reported at the financial statement level (GAGAS)?

Yes

(d)(1)(ii)Were there any significant deficiencies in internal control reported at the financial statement level (GAGAS)?

No

(d)(1)(iii)Was there any reported material noncompliance at the financial statement level (GAGAS)?

Yes

(d)(1)(iv)Were there any material internal control weaknesses reported for major federal programs?

Yes

(d)(1) (iv)Were there any significant deficiencies in internal control reported for major federal programs?

No

(d)(1) (v) Type of Major Program Compliance Opinion Unmodified

(d)(1)(vi) Are there any reportable findings under 2 CFR Section200.516(a)?

Yes

(d)(1)(vii) Major ProgramCDBG Entitlement Grants Cluster, CFDA # 14.218

(d)(1)(viii) Dollar Threshold: Type A/B ProgramsType A: >$750,000Type B: All Others

(d)(1)(ix) Low Risk Auditee? No


Schedule of Findings and Questioned Costs (continued)


9

2. Findings Related to the Financial StatementsRequired to be Reported in Accordance with GAGAS

2017-001: Material Weakness in internal control over financial reporting

Audit Adjustments:

Condition:Sound financial reporting is the responsibility of the City’s Finance Department, Mayor and City Council and is essential to ensure the information provided to the readers of the financial statements is complete and accurate. The lack of controls over the posting of financial transactions and financial reporting can result in errors and irregularities that may go undetected and decreases the reliability of financial data throughout the year.

The following audit adjustment was made to the financial statements:

• Adjusted EMS revenue and related deferred inflow to amounts noted in confirmation received from a third-party service organization.

Criteria:The internal control structure and processes should provide for the accurate assessment of the above accounts and the internal control structure and processes should provide for accurate financial statements reporting at year-end.

Cause:Controls were not in place to ensure the financial statements were properly adjusted for the above accounts as the City did not consider subsequent collections to properly report the EMS revenue and related deferred inflow.

Effect:The lack of controls to ensure the above adjustment was properly included in the financial statements may result in inaccurate financial reporting of the City’s financial statements.

Recommendation:We recommend the City implement controls over its year-end financial reporting process, such as a detailed review of the GAAP conversion workpapers and financial statements by management, thereby increasing the reliability of the financial data at year-end.

Management’s Response:The City will complete an assessment of the above adjustment and ensure the proper controls are in place to mitigate its reoccurrence. Also, the City will ensure that this item is communicated with third parties assisting with the GAAP conversion.




10

2. Findings Related to the Financial StatementsRequired to be Reported in Accordance with GAGAS (continued)

2017-002: Material Weakness – Capital Assets

Condition:The City does not have a Council-approved capital asset policy for reporting its land, construction-in-progress, buildings, improvements other than buildings, machinery and equipment, and infrastructure. We also noted the City has some assets that are no longer in use, donated, or sold, but have not been deleted from the list of capital assets.

Criteria:The internal control structure and processes should provide for the accurate assessment of capital asset additions and deletions throughout the year to ensure proper reporting at year-end.

Cause:Controls were not in place to review and reconcile the capital asset subledger to the general ledger and no policy is in place to ensure consistent reporting of land, construction-in-progress, buildings, improvements other than buildings, machinery and equipment, and infrastructure.

Effect:The lack of controls to ensure assets no longer in use, donated, sold, or fully depreciated were excluded from the capital asset balance may result in misstatements of capital asset and related expenses and gains or losses.Furthermore, the City may inconsistently report land, construction-in-progress, buildings, improvements other than buildings, machinery and equipment, and infrastructure due to a lack of a Council-approved policy.

Recommendation:We recommend that the City reconcile the amounts reported in the City’s computer system in order to accurately report the amount of capital assets and accumulated depreciation at year-end. We also recommend the City adopt a written capital asset policy that includes, but is not limited to the following:

• Depreciable lives for capital assets; • Capitalization thresholds for each class of capital assets for reporting and control purposes; • Depreciation methods; • Salvage values for capital assets; • Methodology for determining improvements and renovations that extend the capital assets’ useful

lives; • Fully depreciated assets still in use; • Whether items that are purchased which, in aggregate, exceed the threshold, but individually do not,

should be capitalized; • Allocating depreciation at the function and program level for the government-wide statement of

activities.

We also recommend that the City’s capital asset policy include that its capital assets are to be depreciated in accordance with U.S. GAAP.




11


2017-002: Material Weakness – Capital Assets (continued)

Management’s Response:The City will complete an assessment of what constitutes a capital asset on an as-needed basis and create a policy addressing all aspects of what constitutes a capital asset and when a capital asset should be depreciated in accordance with U.S. GAAP and have Council approve this policy. In addition, management will review and reconcile the capital asset subledger to the general ledger to ensure assets no longer in use, donated, sold, or fully depreciated are excluded from the capital asset balance.

2017-003: Material Weakness – Maintaining Payroll Forms

Condition:During our testing of payroll in previous years and certain procedures performed in the current year, we noted multiple instances in which an approved payroll authorization form could not be located, inadequate documentation of hours worked, payroll authorization form was not appropriately approved, improper approval of compensated absences, and a lack of support for voluntary deductions. While the salaries were within the salary range established by Council, we were not able to verify the amount paid agreed to the amount authorized, whether or not employees were appropriately compensated for actual hours worked, and whether or not their voluntary deductions were being properly processed.

Criteria:The City should enforce payroll internal control policies requiring supervisors to approve timesheets prior to payroll processing and monitor these policies to ensure that employees are compensated for work performed.

Cause:Controls in place requiring supervisor approval of a payroll authorization form were not performed resulting in documentation that lacked approvals stipulated in the City’s policies and procedures, including approval of compensated absences, and a lack of support for voluntary deductions.

Effect:This may result in employees being paid for hours not worked, compensated in excess of the approved amount or the deduction of monies from the employee without their consent.

Recommendation:We recommend that documentation supporting payroll information be properly reviewed and approved and maintained by the payroll department or in the employee’s personnel file in orderly fashion.

Management’s Response:The City is taking the necessary steps to ensure proper payroll approvals are obtained, adequate documentation of hours worked, proper approval of compensated absences, and support for voluntary deductions is obtained.




12


2017-004: Material Weakness – Schedule of Expenditures of Federal Awards (SEFA) Preparation

Condition:We noted that the SEFA did not properly report clusters, program names or CFDA numbers.

Criteria:The internal control structure and processes should provide for the accurate reporting of federal award programs on the SEFA.

Cause:Controls were not in place to ensure accurate reporting of federal award programs on the SEFA.

Effect:The lack of controls over the accurate reporting of federal award programs on the SEFA can result in errors and irregularities that may go undetected and cause the City to fail to properly report expenditures of federal funds which could lead to improper major program determination and selection.

Recommendation:We recommend that the SEFA be monitored and updated throughout the year and reviewed and approved by the appropriate City personnel to ensure all federal grant programs are properly identified and reported. The program names, CFDA numbers and clusters should be compared to the respective federal websites, grant agreements or OMB Compliance Supplement.

Management’s Response:The SEFA will be monitored and updated throughout the year and reviewed and approved by the appropriate City personnel to ensure all federal grant expenditures are properly identified and reported.

2017-005: Material Weakness – Municipal Court Bank Reconciliations, Supporting Documentation, and Purchasing Procedures

Condition:During the procedures performed on the Municipal Court, we noted that the Municipal Court did not prepare bank reconciliations for all bank accounts utilized during the year ended December 31, 2017. In addition, for the receipts and expenditures selected for testing, the Court was not able to provide adequate supportingdocumentation such as receipt copies, case files, purchase orders and related invoices. Also, we noted that the Court is not utilizing purchase orders for its operational expenditures.

Criteria:The internal control structure should require the Municipal Court to prepare detailed bank reconciliations, in a timely manner, and include all bank account balances being reconciled to book balances. In addition, adequate supporting documentation should be maintained for all receipts and expenditures of the Municipal Court. The Court should follow similar budgetary or purchasing procedures as the City for all its operational expenditures.




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2017-005: Material Weakness – Municipal Court Bank Reconciliations, Supporting Documentation, and Purchasing Procedures (continued)

Cause:Controls were not in place to ensure Municipal Court bank reconciliations were being prepared for all bank accounts utilized, supporting documentation was maintained for receipts and expenditures made by the Municipal Court, and proper budgetary or purchasing procedures for operational expenditures in accordance with the City’s policy.

Effect:The lack of controls over Municipal Court bank reconciliations, lack of supporting documentation for Municipal Court receipts and expenditures, and lack of proper budgetary or purchasing procedures foroperational expenditures can result in errors and irregularities in cash balances that may go undetected and decreases the reliability of financial data throughout the year.

Recommendation:We recommend the Municipal Court prepare detailed bank reconciliations that include all bank account balances being reconciled to book balances on a timely basis (e.g., by the end of the following month). We also recommend that copies of bank reconciliations should be presented to the City’s finance department for review and approval. The review and approval by the finance department should also serve as a monitoring control to ensure reconciliations are prepared timely. In addition, the Municipal Court should maintain adequate supporting documentation for all receipts and expenditures made by the Municipal Court. The Municipal Court should follow the City’s budgetary or purchasing procedures for its operational expenditures.

Management’s Response:The City is taking the necessary steps to ensure Municipal Court bank reconciliations are prepared timely and reviewed and approved by the finance department, adequate supporting documentation is maintained for the Municipal Court’s receipts and expenditures as well as the proper budgetary or purchasing procedures for operational expenditures are implemented.

2017-006: Material Noncompliance – Negative Cash Balances

The City had negative cash balances in the following funds indicating that revenue from other sources were used to pay obligations of this fund contrary to Ohio Revised Code Section 5705.10:

Fund Amount

General Fund $ 274,580

Special Revenue Funds:FEMA Grant 109,304




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2017-006: Material Noncompliance – Negative Cash Balances (continued)

Management’s Response:Management will monitor the timing of receipts and expenditures, and advance monies from the General Fund when available to eliminate negative cash fund balances.

3. Findings for Federal Awards

2017-007: Material Weakness in internal control over federal awards

CFDA 14.218 – Community Development Block Grants / Entitlement Grants (CDBG – Entitlement Grants Cluster)

Condition:During our control testing performed over the allowable costs and allowable activities compliance requirements, we noted out of a sample of 11 items that there were 5 items in which approved payroll authorization forms could not be located and timesheets were not approved. All the salaries were within the salary range established by Council and the time reported on the timesheets matched the hours for which the employee was paid.

Criteria:The respective grant agreements specify that personnel costs are an allowable expense of the grants. Timesheets are utilized by the City to track hours worked by employees and supervisor approval of the timesheets indicates the City considers the hours worked as an allowable expense to these grant funds.

Cause:Controls in place requiring approved payroll authorization forms and approved documentation of hours worked be maintained were not performed.

Effect:Without approved payroll authorization forms and approved documentation of hours worked, it is possible an employee could have been paid for unearned hours that could result in potential questioned costs and unallowable expenditures.

Recommendation:We recommend that the City enforce payroll internal control policies requiring approved payroll authorization forms and approved documentation of hours worked be maintained.

Management’s Response:The City is taking the necessary steps to require approved payroll authorization forms and approved documentation of hours worked be maintained.




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3. Findings for Federal Awards (continued)

2017-008: Material Noncompliance

2 CFR section 200.512(a) requires the reporting package and data collection form to be submitted to the Federal Audit Clearinghouse the earlier of 30 calendar days after the reports are received from the auditor or nine months after the end of the audit period. It was noted that the City did not submit the required documentation within nine months after year-end.

We recommend that the City submit the required information by the submission deadline established by 2 CFR section 200.512(a).

Management’s Response:The City is in the process of remedying this finding by December 31, 2019. The City is in the process of getting the delinquent financial statements completed, submitted and audited to enable a timely filing of the 2018 reporting package.


Schedule of Prior Audit Findings

December 31, 2017

16

FindingNo.

FindingSummary

FullyCorrected Explanation

2016-001 Material Weakness in internal control over financial reportingWe noted the City had several significant audit adjustments made to the to the financial statements during the 2016 audit. Sound financial reporting is the responsibility of the City Finance Director, Mayor, and City Council and is essential to ensure the information provided to the readers of the financial statements is complete and accurate. The lack of controls over the posting of financial transactions and financial reporting can result in errors and irregularities that may go undetected and decreases the reliability of financial data throughout the year.

No The City had a material audit adjustment in the current year.

2016-002 Material weakness – Capital AssetsThe City does not have a Council-approved capital asset policy for reporting its land, construction-in-progress, buildings, improve-ments other than buildings, machinery and equipment, and infrastructure. We also noted the City has some assets that are no longer in use, donated, or sold, but have not been deleted from the list of capital assets. We also noted the City has some assets that are no longer in use, donated, or sold, but have not been deleted from the list of capital assets.

No The City had similar findings in the current year.

2016-003 Material weakness – Maintaining Payroll FormsDuring our testing of payroll in previous years and certain procedures performed in the current year, we noted multiple instances in which an approved payroll authorization form could not be located, inadequate documentation of hours worked, payroll authorization form was not appropriately approved, improper approval of compensated absences, and a lack of support for voluntary deductions. While the salaries were within the salary range established by Council, we were not able to verify the amount paid agreed to the amount authorized, whether or not employees were appropriately compensated for actual hours worked, and whether or not their voluntary deductions were being properly processed.

No The City did not correct this material weakness in the current year.


Schedule of Prior Audit Findings (continued)

December 31, 2017

17

FindingNo.

FindingSummary

FullyCorrected

Explanation

2016-004 Material weakness – Schedule of Expenditures of Federal Awards (SEFA) PreparationWe noted that the Schedule of Expenditures of Federal Awards did not properly report clusters, program names or CFDA numbers.


2016-005 Material Weakness – Municipal Court Bank Reconciliations, Supporting Documentation, and Purchasing ProceduresDuring the procedures performed on the Municipal Court, we noted that the Municipal Court did not prepare bank reconciliations for all bank accounts utilized during the year ended December 31, 2016. In addition, for the receipts and expenditures selected for testing, the Municipal Court was not able to provide adequate supporting documentation such as receipt copies, case files, purchase orders and related invoices. Also, we noted that the Municipal Court is not utilizing purchase orders for its operational expenditures.


2016-006 Material Noncompliance – Budgetary NoncomplianceAt December 31, 2016, the City had several funds that had total original and final appropriation in excess of estimated resources plus carryover balances contrary to Ohio Revised Code Section 5705.39.

No The City had similar findings in the current year, but it was not deemed material to the financial statements taken as a whole and is being reported in the management recommendation letter.

2016-007 Material Noncompliance – Negative Cash BalancesAt December 31, 2016, the City had several negative cash balances in funds indicating that revenue from other sources were used to pay obligations of these funds contrary to Ohio Revised Code Section 5705.10.



Schedule of Prior Audit Findings (continued)

December 31, 2017

18

FindingNo.

FindingSummary

FullyCorrected

Explanation

2016-008 Material Weakness in internal control over federal awardsDuring our control testing performed over the allowable costs compliance requirement, we noted out of a sample of 12 items that there were 7 items in which approved payroll authorization forms could not be located and timesheets were not approved. All the salaries were within the salary range established by Council and the time reported on the timesheets matched the hours for which the employee was paid.


2016-009 Material Noncompliance2 CFR section 200.512(a) requires the reporting package and data collection form to be submitted to the Federal Audit Clearinghouse the earlier of 30 calendar days after the reports are received from the auditor or nine months after the end of the audit period. For example, for an audit period ending December 31, 2016, the Nine Month Due Date is September 30, 2017. However, if the auditor’s reports were received April 30, 2017, the 30-Day Due Date would be May 30, 2017. (If a Due Date falls on a Saturday, Sunday, or federal holiday, the reporting package is due the next business day.). It was noted that the City did not submit the required documentation within nine months after year-end.


88 East Broad Street, Columbus, Ohio 43215 Phone: 614-466-4514 or 800-282-0370

www.ohioauditor.gov

CITY OF EAST CLEVELAND

CUYAHOGA COUNTY

CLERK’S CERTIFICATION This is a true and correct copy of the report which is required to be filed in the Office of the Auditor of State pursuant to Section 117.26, Revised Code, and which is filed in Columbus, Ohio.

CLERK OF THE BUREAU CERTIFIED DECEMBER 5, 2019

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